ASSIGNMENT CENGAGE CHAPTER 4

2) Edelman Engines has $9 billion in total assets of which cash and equivalents totaled $80 million. Its balance sheet shows $1.8 billion in current liabilities of which the notes payable balance totals $0.95 billion. The firm also has $4.5 billion in long-term debt and $2.7 billion in common equity. It has 500 million shares of common stock outstanding, and its stock price is $35 per share. The firm's EBITDA totals $2.8 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations. Round your answers to two decimal places.

M/B: ____

EV/EBITDA: _____

5)Commonwealth Construction (CC) needs $2 million of assets to get started, and it expects to have a basic earning power ratio of 20%. CC will own no securities, all of its income will be operating income. If it so chooses, CC can finance up to 40% of its assets with debt, which will have a 10% interest rate. If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used. Assuming a 25% tax rate on taxable income, what is the difference between CC's expected ROE if it finances these assets with 40% debt versus its expected ROE if it finances these assets entirely with common stock? Round your answer to two decimal places.

_____ PERCENTAGE POINTS

6)The W.C. Pruett Corp. has $1,000,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 8%. In addition, it has $600,000 of common equity on its balance sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are $5.4 million, its average tax rate is 25%, and its profit margin is 2%. What are its TIE ratio and its return on invested capital (ROIC)? Round your answers to two decimal places

TIE: ___

ROIC:____ %