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Strayer FIn534 week 10 homework 5




Question;Directions;Answer the following questions on a separate document. Explain how you reached;the answer or show your work if a mathematical calculation is needed, or both.;Submit your assignment using the assignment link in the course shell. This;homework assignment is worth 100 points.;Use;the following information for Questions 1 through 3;Boehm;Corporation has had stable earnings growth of 8% a year for the past 10 years;and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million.;However, in 2014 earnings are expected to jump to $12.6 million, and Boehm;plans to invest $7.3 million in a plant expansion. This one-time unusual;earnings growth won?t be maintained, though, and after 2014 Boehm will return;to its previous 8% earnings growth rate. Its target debt ratio is 35%.;Calculate;Boehm?s total dividends for 2014 under each of the following policies;Its;2014 dividend payment is set to force dividends to grow at the long-run;growth rate in earnings.;It continues the 2013 dividend;payout ratio.;It;uses a pure residual policy with all distributions in the form of;dividends (35% of the $7.3 million investment is financed with debt).;It;employs a regular-dividend-plus-extras policy, with the regular dividend;being based on the long-run growth rate and the extra dividend being set;according to the residual policy.;Use;the following information for Questions 5 and 6;Schweser;Satellites Inc. produces satellite earth stations that sell for $100,000 each.;The firm?s fixed costs, F, are $2 million, 50 earth stations are produced and;sold each year, profits total $500,000, and the firm?s assets (all equity;financed) are $5 million. The firm estimates that it can change its production;process, adding $4 million to investment and $500,000 to fixed operating costs.;This change will (1) reduce variable costs per unit by $10,000 and (2) increase;output by 20 units, but (3) the sales price on all units will have to be;lowered to $95,000 to permit sales of the additional output. The firm has tax;loss;carryforwards;that render its tax rate zero, its cost of equity is 16%, and it uses no debt.;What is the incremental profit? To;get a rough idea of the project?s profitability, what is the project?s;expected rate of return for the next year (defined as the incremental;profit divided by the investment)? Should the firm make the investment?;Why or why not?;Would the firm?s break-even point;increase or decrease if it made the change?;Use;the following information for Questions 7 and 8;Suppose;you are provided the following balance sheet information for two firms, Firm A;and Firm B (in thousands of dollars).;Firm A;Firm B;Current;assets;$150,000;$120,000;Fixed;assets (net);150,000;180,000;Total;assets;$300,000;$300,000;Current;liabilities;$20,000;$80,000;Long-term;debt;80,000;20,000;Common;stock;100,000;100,000;Retained;earnings;100,000;100,000;Total;liabilities and equity;$300,000;$300,000;Earnings;before interest and taxes for both firms are $30 million, and the effective;federal plus-state tax rate is 35%.;7.;What is the return on equity;for each firm if the interest rate on current liabilities is12% and the rate on;long-term debt is 15%?;8. Assume;that the short-term rate rises to 20%, that the rate on new long-term debt;rises to 16%, and that the rate on existing long-term debt remains unchanged.;What would be the return on equity for Firm A and Firm B under these;conditions?;9. In;1983 the Japanese yen-U.S. dollar exchange rate was 250 yen per dollar, and the;dollar cost of a compact Japanese-manufactured car was $10,000. Suppose that;now the exchange rate is 120 yen per dollar. Assume there has been no inflation;in the yen cost of an automobile so that all price changes are due to exchange;rate changes. What would the dollar price of the car be now, assuming the car?s;price changes only with exchange rates?


Paper#48983 | Written in 18-Jul-2015

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