ctice Test 4 (Ch 14-15) Saved 12 Problem 14-25 Adjusted Cash Flow From Assets (L03) oints eBook Pearl Corp. is expected to have an EBIT of $2,100,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $90,000, and $130,000, respectively. All are expected to grow at 17 percent per year for four years. The company currently has $11,000,000 in debt and 900,000 shares outstanding. At Year 5, you believe that the company's sales will be $16,130,000 and the appropriate price-sales ratio is 2.3. The company's WACC is 8.6 percent and the tax rate Is 23 percent What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) References Share price 11 Problem 15-14 Selling Rights (L04] 1 points Prahm Corp. wants to raise $5.5 million via a rights offering. The company currently has 610,000 shares of common stock outstanding that sell for $56 per share. Its underwriter has set a subscription price of $25 per share and will charge the company a spread of 6 percent eBook References If you currently own 4,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Your proceeds from sale of rights 9 Problem 14-19 Calculating Flotation Costs (L04) 1 points eBook Cully Company needs to raise $40 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 55 percent common stock, 15 percent preferred stock, and 30 percent debt. Flotation costs for issuing new common stock are 6 percent, for new preferred stock, 3 percent, and for new debt, 1 percent. What is the true initial cost figure the company should use when evaluating its project? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole dollar amount, e.g., 1,234,567.) References Initial cost 5 Problem 14-20 WACC and NPV (LO3, 5] pints Sommer, Inc., is considering a project that will result in initial aftertax cash savings of $1.88 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt-equity ratio of.85, a cost of equity of 12.8 percent, and an aftertax cost of debt of 5.6 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of 2 percent to the cost of capital for such risky projects. eBook References What is the maximum Initial cost the company would be willing to pay for the project? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole dollar amount, e.g., 1,234,567.) Maximum cost 4 Problem 14-26 Adjusted Cash Flow From Assets (L03) 1 points eBook You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $3,150,000 this year. Depreciation, the increase in net working capital, and capital spending are expected to be $240,000, $105,000, and $490,000, respectively. You expect that over the next five years, EBIT will grow at 14 percent per year, depreciation and capital spending will grow at 19 percent per year, and NWC will grow at 9 percent per year. The company currently has $18.1 million in debt and 375.000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.5 percent indefinitely. The company's WACC is 7.8 percent and the tax rate is 21 percent References What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price