5. The agency problem can seriously restrain the economic success of a company. What avenues are available to shareholders to bring their goals and those of management into alignment?
6. What is the corporate tax paid by a firm with taxable income of $300,000, given the following tax tables.$0 - $50,000 15%$50,000 - $75,000 25%$75,000 - $100,000 34%$100,000- $335,000 39%
7. A firm is planning to lower its ACP by ten days next year. Receivables are currently $15M on credit sales of $120M Credit sales are expected to grow by 20% next year. Calculate next year's ending receivables balance (make calculations using ending balances and a 360 day year).
8. The following information is available in general and about investments in stocks J and K. The market return (kM) = 9% The risk free rate (kRF) = 5% Stock J's beta = 0.8 Expected constant growth rate for Stock J = 6% Investment in Stock J = $80,000 Stock K's beta = 1.4 Expected constant growth rate for Stock K = 7% Investment in Stock K = $120,000 a. What are the expected returns on Stock J and Stock K individually? b. What is the expected return on the portfolio? c. If Stock K just paid a dividend of $2.50, what is Stock K's intrinsic value?
9. Baxter Inc. is in a fast growing industry, but doesn't seem to be able to match its competitors' growth rates. Selected financial information for Baxter is as follows ($000): Baxter Sales $20,000 EAT $ 1,000 Total Assets $10,000 Equity $ 8,000 Annual dividend $ 700 Research has revealed that the average firm in Baxter's industry pays out 10% of its earnings in dividends, earns 4 cents after tax on every sales dollar, has an equity multiplier of 3.0 and a total asset turnover of 1.9. a. Use a sustainable growth rate analysis in the following table to determine the source(s) of Baxter's growth problems. gs = Retention Ratio x Return on Sales x Total Asset Turnover x Equity Multiplier Industry Baxter b. What negatives might be associated with fixing the problems revealed by the analysis?
10. Assume the following partially completed financial plan ($000): Income Statement Balance Sheet Next Year This Year Next Year Revenue $5,000 Total assets $1,000 $2,000 Operating expenses 4,000 Liabilities & equity: EBIT 1,000 Current liabilities $ 576 $ 200 Interest (8%) ? Long-term debt 100 ? EBT ? Equity 324 ? Taxes(40%) ? Earnings after tax ? Total liabilities & equity $1,000 $2,000 The firm pays 8% interest on all of its debt and is subject to a 40% tax rate. Complete the plan.
The solution explains some questions in finance relating to agency, corporate tax, AR collection, stock investments, asset turnover, plan