1. Gray has a current capital structure consisting of $400,000 of 12% annual interest debt and 50,000 shares of common stock. The firm's tax rate is 40% on ordinary income. If the EBIT is expected to be $200,000, what is the firm's earnings per share?
2. At the beginning of the year Sump and Lane Corporation has retained earnings of $230M and at the end of the year, has retained earnings of $255M. If the net profits after taxes for the year is $70M, what is the amount of dividend paid out for the year?
3. You want to have $1,000,000 in retirement funds in 30 years. What would it take as a single investment today if you could earn 14% on your investment?
4. Lauren purchased ratchets rotator one year ago for $6,500. During the year it generated $4,000 in cash flow. If Lauren sells the rotator, she could receive $6,100. What is the rate of return on the sale of the ratchets rotator?
5. Using the following information for McDonovan, Inc.'s stock, calculate their expected return and standard deviation. State Probability Return Boom 20% 40% Normal 60% 15% Recession 20% (20%)
6. You have been offered a bond for $1250. The bond pays $60 semi-annual interest and will mature in 12 1/2 years. If the current market rate for a similar new bond investment is 8%, is this a good price for the bond?
7. Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.'s common stock is __________.
8. Calculate the initial investment of the following replacement project. The cost of the new asset is $200,000, and installation costs are $15,000. The initial cost of the existing asset is $80,000 and has a book value of $16,000. The existing asset can be sold for $30,000. The tax rate is 40%.
9. Beck Industries are interested in performing two independent projects. Project A has an initial investment of $65,000, and has a useful life of 5 years. Cash flows are expected to be $20,000 each year. Project B has an initial investment of $70,000 and has a useful life of 5 years. Cash flows are expected to be $18,000, $24,000, $19,000, $26,000, and $25,000. The firm's cost of capital is 10%. What is each project's NPV? What is each project's IRR?
10. Cullum Creations produces hand warmers, selling 400,000 warmers a year. Each warmer produced has a variable operating cost of $0.84 and sells for $1.00. Fixed operating costs are $28,000. The firm has annual interest charges of $6,000, preferred dividends of $2,000, and a 40% tax rate. 3
a. Calculate the operating breakeven point in units
b. Use the degree of operating leverage (DOL) formula to calculate DOL.
c. Use the degree of financial leverage (DFL) formula to calculate DFL.
d. Use the degree of total leverage (DTL) formula to calculate DTL.