10 1 pts Zero Motorcycles is a steady-state firm, with unchanging Balance Sheets and Income Statements. Here is information for its most recently reported year: Balance Sheet Total Assets Debt $900 $149 Other Liabilities $300 Equity Etc Income statement EBIT Interest $100 $26.1 Other Expenses Etc Net Income Etc What is Zero's pre-tax cost of debt capital? If not enough information is provided to compute this, answer "0". Otherwise answer to three decimal places. Question 11 SuperCo currently has no debit, but it is thinking of taking out a loan Consider this information comparing the SuperCo with No SuperCo With det debt Debt Principal 0.0 1.000.0 Interest 8% 0.0 80.0 Tax rate 35% 35% Income Statement No debt With debt Revenue 900.0 900.0 SGA 315.0 315.0 By how much will the company's NI be reduced if it takes on the debt? Assume the company's only expense except for interest (if any) and tax is SGA. Represent your answer as a positive number, and round to zero decimal places Question 12 1 pts 0 decimal places. Question 12 1 pts You (as a private equity investor) note that GoodCo REIT is a decent-looking, debt-free company, which is not managed very well. You are therefore considering this project: Buy 100% of GoodCo today for $1,000K Receive estimated GoodCo dividends of $50K for the next two years (at EOY 1 and EOY 2). - Sell the firm at EOY 2, just after you receive the EOY 2 dividend. -You estimate that, do to your awesome management improvements, them market price of the firm will be $1,200K when you sell. -You believe, based on your CAPM analysis, that rE for the firm is 12.00% What is the NPV of this project? As always, use the given units. Represent your answer to two decimal places. Introduction Caribou Coffee, Inc. (CCI) is a profitable, debt-free caf/coffee-shop chain, centered in America's northern midwest. Your Equity/Debt team is considering this project: 11 pital structura Introduction Caribou Coffee, Inc. (CCI) is a profitable, debt-free caf/coffee-shop chain, centered in America's northern midwest. Your Equity/Debt team is considering this project: At T-0, buy all of CCI's stock and re-organize its capital structure to include some debt (D) and equity (E), noting that: -The asking price for 100% of the firm's stock is: -Your team believes that an optimal capital structure for the firm would be: -The equity investors will pay wg or (1-D)/(D+E)% of the purchase price from their own funds. - CCI will take out a long-term loan at the moment of close, provided by the debt investors on the team, to pay the current owners the rest of the purchase price. Here is an incomplete analysis of this project: (All dollar quantities are in SMM, as given above). Financing Structure T PPD-) D+E CAP tot $700.00 MM 65% D/(D+E) Existing As purchased $700.0 $700.0 WD D E Market's view of Enterprise Value 0.0% aa $0.0 bb $700.0 (All dollar quantities are in SMM, as gives abovej Financing Structure Existing As purchased i $700.0 PRO-DE-CAP WD D E - Market's view of Enterprise Value Question 13: What is quantity bb? Question 14 What is quantity ce? $700.0 0.0% 50.0 bb $700.0 #28 1 pts 1 pts Key Rates Income Tax rate 35.000% Existing As purchased 35.0000% Tp (pretax) 5.000% 6.5000% 8.500% 9.3533% WACC 8.500% 8.0713% Free Cash Flows Partial Income Statement (SMM UON) Revenue - Depreciation -Other Operating Expenses -EBIT - Tax on EBIT Etc. What is the annual free cash flow to all stakeholders? Existing Ast D-$0.0 Purchased. $250.00 $250.00 ($90.00) ($90.00) ($110.00) ($110.00) $50.00 $50.00 ($17.50) Valuation PPD-E) Full control takeover price. (Buy all stock and pay off all debt, if any). -Market's view of Enterprise Value SPD) Resale price of stock plus loan principal repayment d Question 15 What is quantity d? D Question 16. D D What is the absolute value of quantity a? Question 17 What is quantity b? Question 18 What is the absolute value of quantity c? COMEN 1 pts 1 pts 1 pts 1 pt 0 Valuing InMotion to all stakeholders: Buy-Manage-Sell - Continned A competing team agrees with your analysis and computations, except they believe that: -The appropriate Twice for the project is: -The annual free cash flow to all stakeholders is: - At the end of the project, the stock will be sold for an amount that differs from your estimate, so their estimate of Resale price of stock plus loan principal repayment - Spo- What is the competing team's PV-D? (IE: what is the competing team's estimate of IMT's Enterprise Value?) Question 19 7.6677% $35.75 $451.2500 This competing team has also managed to negotiate the purchase price from $400 down to $376. Using its values, what does the competing team think is the NPV of the project? D Question 20 OMEN 1 pts 1 pts 0 D Question 20 1 pts If the competing team computes an NPV of-20, does thier work suggest that they should pursue this project? Choose yes or no, and give the best reason listed to support your answer. No Yes Because this project would reduce the wealth of the team. Because this project would increase the wealth of the team. Because the project's NPV is greater than zero. Because they have not checked thier work using the IRR method Question 21 What is quantity e? Optimum Capital Structure InMotion is currently debt free. The CEO has hired you to explore whether the 1 pts below to help prepare your pitch to the CEO Optimum Capital Structure Analysis for InMotion Key constant Tax Rate 40.00% Variable Ratios and Rates Case 1 D/(DE) - WD 0.0% 2 30.00% 3 4 60.0% 80.0% D (pretax) NA 7.50% 11.00% rE (not computed from CAPM) 8.20% Y 12.88% 20.68% WACC 0.0820 0.0785 0.0942 assume the given waccs are correct, even if your computations disagree. D Question 22 1 pts If the CEO of InMotion asks you. "Why is considering twAAC for various levels of D/ID+E) a common method to help estimate the optimum capital structure of an entity?", what is the single best answer you can give him, from the choices shown? The minimum WAAC found corresponds to the maximum present value of a firm's future cash flows to all financial stakeholders. The minimum WAAC found corresponds to the maximum present value of a firm's future cash flows to all shareholders. The maximum WACC found corresponds to the maximum value of the firm. O The optimum WACC is closest to re. This case maximizes the value of the firm. OME Financial Statements Historical Projection Rules Projected PPE Roll Forward Eqs EOY-1 EOY O Hem 20X-1 2000 Rule Source Project as 20X1 PPE (BOP) -Deprec 80.000 (0.067) PPE roll forward eq. Last year's EOP PPE 81.333 CFO 8333% of BOP PPE 6778) Caps 8.000 CFO % of Deprec -PPE (EOP) 00000 81.333 Roll fed equation Solve for this 2 Income Statement Sales COGS Depreciation SGA Interest Tax NI YO 2000 90.000 Rule Source CFO Project as 5.00% 55.000 Sales 61.11% Sales Growth of Sales 20X1 94.500 6.067 PPE Rot Forward Take from above Rol Fad Eq 6778 10 000 11 11% 10.500 1.000 Interest Equation 2 Interest/Debor 4 8020 Trate Equation 47.93% Tax/EBT 8525 8.713 9.263 Equity Roll Forward EOY-1 EOY 0 Item 20X-1 Exce 20X0 31.287 Rule Source NI 8.713 Income Statement DN 0.000 Equity Roll Fwd Eq. CFO/Board Project as Last yr's Equity 20X1 40.000 NI on above IS 9 263 of N 5 PIC (PIC for buyback) 0.000 CFO/Board Exor 31.287 40.000 Equity Roll Fwd Eq 0.0 See eq at left 0.000 48:336 EOY-1 EOY 0 Balance Sheets 20X-1 Cash 20X0 5.000 Rule Source Project as CFO 4.00% of Sales 20X1 3.780 AR Inventory Total CA 25.000 35.000 65.000 % Sales 27.78% of Sales 26.250 % Sales 38.89% of Sales 36.750 66.780 PPE (net) 81.333 PPE Roll Forward Take from PPE Roll Fwd Eq 82.689 Total Assets 146.333 149.469 AP 30 000 % Sales Other CL 36.333 % Sales 2 40.37% % of Sales of Sales 6 38 150 ? Total CL 66.333 Debt 38.000 40.000 CFO Solve for this COMEN To Assets AP Other CL Total CL 145-300 30000 54540 30333 00.333 40.37% % of Sates of Sakes 38150 Debe 38.000 Total Labtes 40 000 105.333 CFO So for T 101.133 Equity 31.287 40000 Equity Hot Fwd Eq. Take from Equity rude Check A (LE)0 Check (E tm B5)-E fm rod fwd) 0000 0000 0000 0000 Question 25 What is quantity 6? Question 26 The "Rule Source" for quanity 3a is 0% of Sales O The CFO or the board An accounting equation The enterprise valian imperative Choose the single best answer. COMEN 1 pts 1 pts Question 27 What is the absolute value of quantity 3? Question 28 What is quantity 27 Question 29 What is the absolute value of quantity 5? D Question 30 COMEN 1 pts 1 pts 1 pts 1 pt What y Question 29 What is the ale of quay S Question 30 What is quantity 77 Hint start with ALE Expand this to A-Debt all other Lities Solve for Deb A L V G H 1 1 pts No new data to save. Last shecked at 103om Subn OMEN HL