Enterprise Value, Operating Expense and Capital Expense
1.In March 2005, General Electric (GE) had a book value of equity of $113 billion, 10.6 billion shares outstanding, and market price of $36 per share. GE also had cash of $13 billion, and total debt of $370 billion.
What was GE's Enterprise value? (Points: 1)
0.97
3.27
3.38
$381.6 billion
738.6
2. Suppose a firm's tax rate is 35%.What effect would a $10 million operating expense have on this year's earnings? What effect would it have on next year's earnings?
3. Suppose a firm's tax rate is 35%.What effect would a $10 million capital expense have on this year's earnings, if the capital is depreciated at a rate of $2 million per year for 5 years? What effect would it have on next year's earnings?
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Solution Summary
This solution explains:
1) How to calculate the enterpise value of a firm.
2) What effect operating expenses have on current and next-year earnings.
3) What effect capital expenses have on current and next-year earnings.