$60,000 1) (4 mark) company's discount rate with her career in de longer the following costs and revenues for OEM Company has an opportunity to manufacture and sell a new product for a fouryan the new product Cost of equipment needed $130.000 Working capital needed Overhaul of the equipment in two years 58.000 Salvage value of the equipment in four years S12.000 Annual revenues and costs Sales revenues $250.000 Variable expenses $120,000 Fixed out-of-pocket operating costs 570,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company Required: Calculate the net present value of this investment opportunity. Should the investment be accepted? Explain in (20 marks) Due to erratic sales of its sole product a high-capacity battery for laptop computers--Alpha Byte, Inc. has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (19,500 units x S30 per unit) Variable expenses. Contribution margin (CM) Fixed expenses Net operating income ... $585.000 409,500 175,000 180.000 $14.500) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the president is right, what will be the increase (decrease in the company's monthly net operating income? Comment on your answer. 3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $60,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)? Comment on your answer. 4. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by 75 cents per unit Assuming no other changes, how many units would have to be sold each month to attain a target profito $9.750? Page 2 of 6 PTOP. of concerto be able to supply as contries with Calencies in Corp. reces as throwth retained earnings ON OF the required epa. Zer feels it can raise equio The company will try to maintain this capital structure in financing this expansion plan he in oprium capital structure has been 45% debt, 10% preferred stock and 45 Cer's en stock is traded at a price of $20 per share and is expected to pay a S162 per sh wrock is selling ar $50 and pays a dividend of $3. FONT, and is expected to maintain an 896 growth rate for the foreseeable future. The compa Floration costs have been estimated at 8% of common stock and 3% of preferred Torp has bonds outstanding at 10%, but its investment banker has informed the company the bands of equal risk are currently yielding 9%. Zinger's tax rate is 46%. Compute the cost of debt(K), cost of preferred stock (Kp), cost of common equ cost of new common stock (Kn). (15 marks) 2) Calculate the weighted average cost of capital (WACC) using Ke. What does (5 marks) How large a capital structure can the firm support with retained earnings fina arks) Vhat will the marginal cost of capital be immediately after that point? (Equ ercent of the capital structure, but will all be in the form of new common s) 9% cost of debt referred to earlier applies only to the first $27 million of debt will be 12%. At what size capital structure will there be a ch plain. (4 marks) Question 3.33 mack) vindtil derer. Corpoention manufactures industrial type sewing machines. Zinger Corp. received a very large order from a few European countries. In order to be able to supply these countries with its products, intemally, through retained earnings Zinger will have to expand its facilities or the required expansion, zinger feels it can raise $75 million The firm's optimum capital structure has been 45% debt, 1096 preferred stock and 45% common next year, and is expected to maintain an 8% growth rate for the foreseeable future. The company's preferred Zinger's common stock is traded at a price of $20 per share and is expected to pay a 51.62 per share dividend stock is selling at $50 and pays a dividend or $3. Flotation costs have been estimated at 8% of common stock and 3% of preferred stock. Zinger for bonds of equal risk are currently yielding 9% Zinger's tax rate is 46%. Corp, has bonds outstanding at 10%, but its investment banker has informed the company that interest rates 1) Compute the cost of debt (K.), cost of preferred stock(K),cost of common equity Ke), and cost of new common stock (Kn). (15 marks) 2) Calculate the weighted average cost of capital (WACC) using Ke. What does WACC signity? (5 marks) 3) How large a capital structure can the firm support with retained earnings financing? Explain. (4 marks) 4) What will the marginal cost of capital be immediately after that point? (Equity will remain at 45 percent of the capital structure, but will all be in the form of new common stock, kn.). (5 marks) 5) The 9% cost of debt referred to earlier applies only to the first $27 million of debt. After that, the cost of debt will be 12%. At what size capital structure will there be a change in the cost of debt? Explain. (4 marks) comparative income statement is given below for Emerald Corporation EMERALD CORPORATION Comparative Income Statement For Years Ended December 31, 2020 and 2019 2019 2020 Sales AED 535.000 AED 720.000 Cost of goods sold 280.340 475,200 Gross profit 244.800 254,660 Operating expenses 1103.790 151.200 Net income AED 93.600 AED 150.870 Required: de Perform common-size (vertical) analysis for each year's income statement. Carry computation 2. Assess whether this company's situation is favorable or unfavorable. Explain. if) (15 marks) You are working as a Credit Analyst at Union Bank (UB). Your line manager has received cred application from Gamma Communications PLC and asked you to assess the creditworthiness o company. You have collected the following information from the Gamma's financial statemen Total assets $80,000 EBIT $7,000 Net working capital $4000 Book value of debt $40,000 Accumulated retained earnings $15,000 Sales $40,000 Shares outstanding 6.000 Share price $16 Cuired: Altman's Z-Score Model to predict the likelihood of bankruptcy of the firm within the ve your recommendation on the credit application. $60,000 1) (4 mark) company's discount rate with her career in de longer the following costs and revenues for OEM Company has an opportunity to manufacture and sell a new product for a fouryan the new product Cost of equipment needed $130.000 Working capital needed Overhaul of the equipment in two years 58.000 Salvage value of the equipment in four years S12.000 Annual revenues and costs Sales revenues $250.000 Variable expenses $120,000 Fixed out-of-pocket operating costs 570,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company Required: Calculate the net present value of this investment opportunity. Should the investment be accepted? Explain in (20 marks) Due to erratic sales of its sole product a high-capacity battery for laptop computers--Alpha Byte, Inc. has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (19,500 units x S30 per unit) Variable expenses. Contribution margin (CM) Fixed expenses Net operating income ... $585.000 409,500 175,000 180.000 $14.500) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the president is right, what will be the increase (decrease in the company's monthly net operating income? Comment on your answer. 3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $60,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)? Comment on your answer. 4. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by 75 cents per unit Assuming no other changes, how many units would have to be sold each month to attain a target profito $9.750? Page 2 of 6 PTOP