B56 Xfx =(B48/((1+B55)^1)+B48/((1+B55)^2)+C48/((1+B55)^3))-B41-840 B C D E F G H A On their latest income statement, Emily's Construction reported sales of $674,000, costs of $391,600, depreciation of $111,200, and dividends of $68,976. The company's ROE is 5.9 percent, and they face a 21 percent tax rate. Assuming the ratio of dividends to earnings in constant, estimate the growth rate of dividends. 23 3 Sales Costs Depreciation Dividends $674,000 4 $391,600 5 $111,200 6 $68,976 7 Net Income $135,248.00 8 Payout Ratio 51.00% 9 ROE 5.90% 10 Tax Rate 11 12 Sustainable Growth Rate 13 1.2 21% 2.89% Emily's Construction just paid a dividend of $3.30, and their common stock is priced at $61.90 per share. Calculate the 14 required return on equity. 15 Dividend Paid 16 Common Stock Price 17 18 Required Return on Equity 19 1.3 20 $3.30 $61.90 8.38% Emily's Construction has one issue of bonds outstanding. The bonds pay a 8.90 percent semiannual coupon, mature in 8 years, and currently sell at 113.00 percent of par. Calculate the company's required return on debt. 21 Settlment Date 22 Maturity Date 23 Coupon Rate 24 Bond Price (% of par) 25 Face Value (% of par) 26 Coupon per year 27 Yield to matruity 28 1.4 3/1/00 3/1/08 8.90% 113 100 2 6.77% Emily's Construction has a debt-equity ratio of 0.57 and a tax rate of 21 percent. What is the company's overall required rate of 29 return? 30 Cost of Debt 31 Cost of Equity 6.77% 8.38% 32 Debt-Equity Ratio 0.57 33 Tax Rate 21% 34 Weight of Debt 36.31% 35 Weight of Equity 63.69% 36 37 WACC 7.28% 38 1.5, 1.6, 1.7, 1.8 Emily's Construction is considering offering a new product. This product requires an investment of $113,000 in new fixed assets and $24,350 in net working capital, all of which is recoverable at the end of the project. The fixed assets will be depreciated straight-line to zero over the 3-year life of the project. The company spent $10,000 to hire a consult to estimate the potential costs and revenue associated with this project. The consultant projects the product will produce annual sales of $96,600 with annual costs of $56,500. At the end of the project, the company should be able to sell the fixed assets for 39 $16,600. 40 Initial Investment 41 Working Capital Rquired $113,000 $24,350 42 Time 43 Tax Rate 44 45 Annual Sales 46 Annual Cost 3 21% $96,600 $56,500 49 47 Depreciation 48 Operating Cash Flows (OCF) $39,589.00 50 Salvage Value $37,667 $63,939.00 $16,600 51 After Tax Salvage Value $13,114.00 52 53 CFO ($137,350) 54 CF3 55 Rate of Return 56 Net Present Value $77,053.00 8.38% ($16,884.99) ($3,642.21) 57 How sensitive are these estimates to a change in required fixed assets? Suppose required fixed assets increase by 7 percent. 58 1.9, 1.10