Task 1: The firm is planning to borrow 500,000 on a 5-year, 7 percent, annual payment,...
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Task 1: The firm is planning to borrow €500,000 on a 5-year, 7 percent, annual payment, fully amortized term loan. a) Given this loan amortization schedule, calculate the annual payment on the loan. b) What fraction of the payment made at the end of the second year will represent repayment of (circle the correct answer and illustrate it with calculations) principal? A) 76.29%; B) 42.82%; C) 50.28%; D) 49.72 %; E) 60.27% Task 2: A firm, which is just being established, needs €1,000,000 of assets, and it expects to have a basic earning power ratio of 20%. The firm will own no securities, so all of its income will be operating income. If it chooses to, it can finance up to 50% of its assets with debt, which will have an 8% interest rate. The tax rate on all taxable income is 30%. a) Determine the firm's financials and complete the table, assuming the firm is financed with 50% debt and 50% common equity. Company's Expected Financial Data Assuming 50% Debt Financing Earnings before interest and tax Debt Debt charge (interest expense) Earnings before tax Taxes Net income (show all calculations in the spaces provided) b) Determine the firm's financials and complete the table, assuming the firm is financed with 100% equity and 0% debt. Company's Expected Financial Data Assuming 100% Equity Financing Earnings before interest and tax Debt Debt charge (interest expense) Earnings before tax Taxes Net income (show all calculations in the spaces provided) c) What is the difference between its expected return on equity (ROE) if the firm finances with 50% debt versus its expected ROE if it finances entirely with common equity? Task 3: The firm has projected a sales volume of €2,650,000 for the first year of a proposed expansion project. Costs normally run 60% of sales, or about €1,590,000 in this case. The depreciation expense will be €200,000, and the tax rate is 20%. Calculate the after-tax operating cash flow in the first year. Task 4: Refer to information about the firm's product price and cost structure: $2.00 0.80 Price per unit Variable cost per unit Fixed operating costs (per year) Annual interest expense What is the firm's breakeven quantity of sales? 40,000 20,000 Task 1: The firm is planning to borrow €500,000 on a 5-year, 7 percent, annual payment, fully amortized term loan. a) Given this loan amortization schedule, calculate the annual payment on the loan. b) What fraction of the payment made at the end of the second year will represent repayment of (circle the correct answer and illustrate it with calculations) principal? A) 76.29%; B) 42.82%; C) 50.28%; D) 49.72 %; E) 60.27% Task 2: A firm, which is just being established, needs €1,000,000 of assets, and it expects to have a basic earning power ratio of 20%. The firm will own no securities, so all of its income will be operating income. If it chooses to, it can finance up to 50% of its assets with debt, which will have an 8% interest rate. The tax rate on all taxable income is 30%. a) Determine the firm's financials and complete the table, assuming the firm is financed with 50% debt and 50% common equity. Company's Expected Financial Data Assuming 50% Debt Financing Earnings before interest and tax Debt Debt charge (interest expense) Earnings before tax Taxes Net income (show all calculations in the spaces provided) b) Determine the firm's financials and complete the table, assuming the firm is financed with 100% equity and 0% debt. Company's Expected Financial Data Assuming 100% Equity Financing Earnings before interest and tax Debt Debt charge (interest expense) Earnings before tax Taxes Net income (show all calculations in the spaces provided) c) What is the difference between its expected return on equity (ROE) if the firm finances with 50% debt versus its expected ROE if it finances entirely with common equity? Task 3: The firm has projected a sales volume of €2,650,000 for the first year of a proposed expansion project. Costs normally run 60% of sales, or about €1,590,000 in this case. The depreciation expense will be €200,000, and the tax rate is 20%. Calculate the after-tax operating cash flow in the first year. Task 4: Refer to information about the firm's product price and cost structure: $2.00 0.80 Price per unit Variable cost per unit Fixed operating costs (per year) Annual interest expense What is the firm's breakeven quantity of sales? 40,000 20,000
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Task 1 a To calculate the annual payment on the loan we can use the formula for the present value of an annuity PMT PV 1 1 rn r Where PMT Annual payment PV Loan amount r Interest rate per period n Num... View the full answer
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham
Posted Date:
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