Following is the information for Spices, Inc. in year 2020 where it expects to reach its...

 

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Following is the information for Spices, Inc. in year 2020 where it expects to reach its maturity stage. Cash flows are expected to grow at a long-term rate of 6% onwards. The firm has 9% cost of debt, 20% cost of equity, 25% tax rate and 0.4 target debt-to-value ratio. Spices, Inc. also has $2,600,000 interest-bearing debt obligation and 100,000 shares outstanding. Net income = $1,200,576 Interest = $312,000 Earnings before interest and taxes = $1,235,520 Depreciation expense = $924,480 Capital expenditure = $1,529,280 Required Cash Surplus Cash Accounts Receivable Inventories Accounts Payable Accrued Liabilities Bank Loan Questions: 2019 1,200,000 2,547,635 3,456,000 4,320,000 2,592,000 1,520,875 2,840,000 2020 1,080,000 2,888,662 3,697,920 4,622,400 2,773,440 1,749,006 2,600,000 A. Determine the venture's enterprise value in 2019. (6 marks) B. Suppose Spices, Inc. has also issued convertible preferred stocks with a conversion ratio of 2 and they are currently valued at $10 each. What is the minimum price that a share of the Spices, Inc.'s common stock should be valued at? (2 mark) C. Why is it important for the venture that convertible securities also be callable? (2 marks) Following is the information for Spices, Inc. in year 2020 where it expects to reach its maturity stage. Cash flows are expected to grow at a long-term rate of 6% onwards. The firm has 9% cost of debt, 20% cost of equity, 25% tax rate and 0.4 target debt-to-value ratio. Spices, Inc. also has $2,600,000 interest-bearing debt obligation and 100,000 shares outstanding. Net income = $1,200,576 Interest = $312,000 Earnings before interest and taxes = $1,235,520 Depreciation expense = $924,480 Capital expenditure = $1,529,280 Required Cash Surplus Cash Accounts Receivable Inventories Accounts Payable Accrued Liabilities Bank Loan Questions: 2019 1,200,000 2,547,635 3,456,000 4,320,000 2,592,000 1,520,875 2,840,000 2020 1,080,000 2,888,662 3,697,920 4,622,400 2,773,440 1,749,006 2,600,000 A. Determine the venture's enterprise value in 2019. (6 marks) B. Suppose Spices, Inc. has also issued convertible preferred stocks with a conversion ratio of 2 and they are currently valued at $10 each. What is the minimum price that a share of the Spices, Inc.'s common stock should be valued at? (2 mark) C. Why is it important for the venture that convertible securities also be callable? (2 marks) Following is the information for Spices, Inc. in year 2020 where it expects to reach its maturity stage. Cash flows are expected to grow at a long-term rate of 6% onwards. The firm has 9% cost of debt, 20% cost of equity, 25% tax rate and 0.4 target debt-to-value ratio. Spices, Inc. also has $2,600,000 interest-bearing debt obligation and 100,000 shares outstanding. Net income = $1,200,576 Interest = $312,000 Earnings before interest and taxes = $1,235,520 Depreciation expense = $924,480 Capital expenditure = $1,529,280 Required Cash Surplus Cash Accounts Receivable Inventories Accounts Payable Accrued Liabilities Bank Loan Questions: 2019 1,200,000 2,547,635 3,456,000 4,320,000 2,592,000 1,520,875 2,840,000 2020 1,080,000 2,888,662 3,697,920 4,622,400 2,773,440 1,749,006 2,600,000 A. Determine the venture's enterprise value in 2019. (6 marks) B. Suppose Spices, Inc. has also issued convertible preferred stocks with a conversion ratio of 2 and they are currently valued at $10 each. What is the minimum price that a share of the Spices, Inc.'s common stock should be valued at? (2 mark) C. Why is it important for the venture that convertible securities also be callable? (2 marks) Following is the information for Spices, Inc. in year 2020 where it expects to reach its maturity stage. Cash flows are expected to grow at a long-term rate of 6% onwards. The firm has 9% cost of debt, 20% cost of equity, 25% tax rate and 0.4 target debt-to-value ratio. Spices, Inc. also has $2,600,000 interest-bearing debt obligation and 100,000 shares outstanding. Net income = $1,200,576 Interest = $312,000 Earnings before interest and taxes = $1,235,520 Depreciation expense = $924,480 Capital expenditure = $1,529,280 Required Cash Surplus Cash Accounts Receivable Inventories Accounts Payable Accrued Liabilities Bank Loan Questions: 2019 1,200,000 2,547,635 3,456,000 4,320,000 2,592,000 1,520,875 2,840,000 2020 1,080,000 2,888,662 3,697,920 4,622,400 2,773,440 1,749,006 2,600,000 A. Determine the venture's enterprise value in 2019. (6 marks) B. Suppose Spices, Inc. has also issued convertible preferred stocks with a conversion ratio of 2 and they are currently valued at $10 each. What is the minimum price that a share of the Spices, Inc.'s common stock should be valued at? (2 mark) C. Why is it important for the venture that convertible securities also be callable? (2 marks)

Answer rating: 100% (QA)

Answer A The ventures enterprise value in 2019 is 15920000 B The minimum price that a share of the S... View the full answer