Finance 3301 questions Essay

Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2012 to $9. 2 million in 2013. Its assets totaled $5 million at the end of 2012. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2012, current liabilities were $1. 4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Brous- sard’s additional funds needed for the coming year. Required increase in assets – Increase in spontaneous liabilities – Increase in retained earnings = AFN AFN=($5/$8)*$1. 2 – ($1. 4/$8)*$1. 2-$9. 2*6%*(1-40%)=0. 75 – 0. 21 – 0. 33=21% Chapter 10 Tony Company’s balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Tony Company`s tax rate is 40%, rd =6%,rPS =5%,andrs =10%. If Tony Company get capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC? Wd=30% ; Wps=5%; Ws=65% WACC=Wd*rd*(1-T)+Wps*rps+ws*rs=30%*6%(1-40%)+5%*5%+65%*10%=0. 0108+0. 000125+0. 065=7. 59% What kinds of the T-bonds is the best proxy for the risk-free rate is the yield on? Answer: A A, long-term B, short-term C, No one Chapter 11 A company creates value when the spread between EROIC and WACC is positive—that is, when Answer: B A, EROIC ? WACC = 0 B, EROIC ? WACC > 0; C, EROIC ? WACC