Question: Please help with below finance questions: Class, for the referenced assignment, we will build upon the Saxton Company from the Week # 3 Signature Assignment.For
- Please help with below finance questions:
Class, for the referenced assignment, we will build upon the Saxton Company from the Week # 3 Signature Assignment.For the Week # 6 Signature Assignment and based upon the Saxton Company (financials), assume that Net Income is a Perpetuity.Then for the Saxton Company:
1. Using Net Income as a Perpetuity, determine a (Present) Value for the Saxton Company assuming that ROE is the % Discount Rate (i.e. % Required Rate of Return)
2.Determine the Weighted Average Cost of Capital (WACC), where ROE can be viewed as the Cost of Equity (component) and the Cost of Debt can be determined by dividing the Interest Expense by the Total Debt
3.Using Net Income as a Perpetuity, determine a (Present) Value for the Saxton Company (now) assuming that the WACC is the Discount Rate (i.e.% Required Rate of Return).
Be sure to see the Week # 6 Announcement regarding assignment submission.Thanks so much, and reach out as need be.
SAXTON COMPANY
Income Statement
For the Year Ended December 31, 2009
Sales (all on credit) ..................................................................... $ 4,000,000
Cost of Goods Sold...........................................................................3,000,000
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Gross Profit.....................................................................................$ 1,000,000
Selling and Administrative Expenses...........................................450,000
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Operating Profit ..............................................................................$550,000
Interest Expense..............................................................................50,000
Extraordinary Loss............................................................................200,000
Earnings Before Taxes.....................................................................$300,000
Income Taxes (33%).........................................................................100,000
Net Income........................................................................................$200,000
SAXTON COMPANY
Balance Sheet
As of December 31, 2009
Assets
Cash....................................................................................... $30,000
Accounts Receivable...........................................................350,000
Marketable Securities ........................................................50,000
Inventory...............................................................................370,000
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Total Current Assets............................................................. $800,000
Net Plant and Equipment.....................................................800,000
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Total Assets............................................................................$ 1,600,000
Liabilities and Stockholders' Equity
Accounts Payable....................................................................$50,000
Notes Payable..........................................................................250,000
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Total Current Liabilities...........................................................$ 300,000
Long Term Liabilities.................................................................. 300,000
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Total Liabilities ..........................................................................$ 600,000
Common Stock............................................................................ 400,000
Retained Earnings.......................................................................600,000
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Total Stockholders' Equity.......................................................$ 1,000,000
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Total Liabilities and Stockholders' Equity.............................. $ 1,600,000
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