Purchase Solution

# Enterprise Value, Operating Expense and Capital Expense

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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?

##### 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.

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