Please see Week 7 assignment document attached

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1. Here are book and market value balance sheets of the United Frypan Company (UF): Book Net working capital Long-term assets $ 20 $ 40 80 60 $100 Debt $100 Equity Market Net working capital Long-term assets $ 20 $ 40 140 120 $160 Debt $160 Equity Assume that MM's theory holds with taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 40% corporate tax rate. a. How much of the firm's value is accounted for by the debt-generated tax shield? PV tax shield $ b. How much better off will UF's shareholders be if the firm borrows $20 more and uses it to repurchase stock? Increase in equity value $ 2. a. What is the relative tax advantage of corporate debt if the corporate tax rate is Tc = 0.35, the personal tax rate is Tp = 0.35, but all equity income is received as capital gains and escapes tax entirely (TpE = 0)? Relative tax advantage b. How does the relative tax advantage change if the company decides to pay out all equity income as cash dividends that are taxed at 15%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Relative tax advantage 3. Construct a balance sheet for Galactic Enterprises given the following data: Cash balances Inventories Net plant and equipment Accounts receivable Accounts payable Long-term debt $ 25,000 $ 30,000 $140,000 $ 35,000 $ 24,000 $130,000 What is shareholders' equity? Shareholders' equity $ 4. value: 8.00 points The following table gives abbreviated balance sheets and income statements for Este Lauder Companies. Assume a corporate tax rate of 35%. ($ in millions) End of Year Start of Year Balance Sheet Assets Current assets: Cash and marketable securities Accounts receivable Inventories Other current assets Total current assets Fixed assets: Tangible fixed assets Property, plant, and equipment Less accumulated depreciation $1,253 946 996 492 $1,121 746 827 428 3,687 3,121 2,862 1,719 2,525 1,501 Net fixed assets Other long-term assets 1,143 1,444 1,024 1,191 $6,274 $5,336 Liabilities and Shareholders' Equity Current liabilities: Debt due for repayment Accounts payable $ 138 1,805 $ 23 1,549 Total current liabilities Long-term debt Other long-term liabilities 1,943 1,080 621 1,572 1,205 610 3,627 2,629 3,370 1,948 $6,274 $5,336 Total assets Total liabilities Total shareholders' equity Total liabilities and shareholders' equity Income Statement Net sales Cost of goods sold Selling, general, and administrative expenses Depreciation $8,810 1,937 5,486 298 Earnings before interest and taxes (EBIT) Interest expense 1,089 64 Taxable income Tax 1,025 322 Net income $ 703 Dividends Addition to retained earnings 148 555 Where appropriate use assets at start of year rather than average assets. a. Calculate the return on assets. (Do not round intermediate calculations. Round your answer to 2 decimal places.) % Return on assets b. Calculate the operating profit margin. (Do not round intermediate calculations. Round your answer to 2 decimal places.) % Operating profit margin c. Calculate the sales-to-assets ratio. (Round your answer to 2 decimal places.) Sales-to-assets ratio d. Calculate the inventory turnover. (Round your answer to 2 decimal places.) Inventory turnover e. Calculate the debt-equity ratio. (Round your answer to 2 decimal places.) Debt-equity ratio f. Calculate the current ratio. (Round your answer to 3 decimal places.) Current ratio g. Calculate the quick ratio. (Round your answer to 4 decimal places.) Quick ratio 5. The following table gives abbreviated balance sheets and income statements for Este Lauder Companies. ($ in millions) End of Year Start of Year Balance Sheet Assets Current assets: Cash and marketable securities Accounts receivable Inventories Other current assets $1,253 946 996 492 $1,121 746 827 428 Total current assets Fixed assets: Property, plant, and equipment Less accumulated depreciation 3,687 3,121 2,862 1,719 2,525 1,501 Net fixed assets Other long-term assets 1,143 1,444 1,024 1,191 $6,274 $5,336 Liabilities and Shareholders' Equity Current liabilities: Debt due for repayment Accounts payable $ 138 1,805 $ 23 1,549 Total current liabilities Long-term debt Other long-term liabilities 1,943 1,080 621 1,572 1,205 610 3,627 2,629 3,370 1,948 $6,274 $5,336 Total assets Total liabilities Total shareholders' equity Total liabilities and shareholders' equity Income Statement Net sales $8,810 Cost of goods sold 1,937 Selling, general, and administrative 5,486 expenses Depreciation 298 Earnings before interest and taxes (EBIT) Interest expense 1,089 64 Taxable income Tax 1,025 322 Net income $ 703 Dividends Addition to retained earnings 148 555 At the end of fiscal 2011 Este Lauder had 197 million shares outstanding 21 with a share price of $105. The company's weighted-average cost of capital was about 10%. a. Calculate the market value added. (Enter your answer in millions.) Market value added $ million b. Calculate the market-to-book ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Market-to-book ratio c. Calculate the economic value added. (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.) Economic value added $ million d. Calculate the return on capital. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Return on capital %