A company is estimating its optimal capital structure.
Question 40
A company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (rRF) is 5% and the market risk premium (rM - rRF) is 6%. Currently the company's cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm's current leveraged beta using the CAPM______
1.0 | |||||||||||||||||||||||||||||
1.5 | |||||||||||||||||||||||||||||
1.6 | |||||||||||||||||||||||||||||
1.7 | |||||||||||||||||||||||||||||
Question 41 Based on the information from Question 40, find the firm's unleveraged beta using the Hamada Equation ______
Question 42 Based on the information from Question 40 and 41, what would be the company's new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/.0) using the Hamada Equation? ______
Question 43 Based on the information from Question 40 ~ 42, what would be the company's new cost of equity if it were to change its capital structure to 50% debt and 50% equity (D/S .0) using the CAPM? ______
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Question 44
A firm expects to have net income of $5,000,000 during the next year. The company's target capital structure is 35% debt and 65% equity. The company's director of capital budgeting has determined that the optimal capital budget for the coming year is $6,000,000. If SL Computer follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year's dividend, then what is the firm's expected dividend payments? ______
$1,100,000 | |
$3,900,000 | |
$5,000,000 | |
$6,000,000 |
Question 45
Using the data from Question 44, find the firm's dividend payout ratio ______
11% | |
22% | |
35% | |
65% |
Question 46
A business analysis has recently been hired to improve the performance of a firm, which has been experiencing a severe cash shortage. As one part of your analysis, the analyst wants to determine the firm's cash conversion cycle. Using the following information and a 365-day year: Current inventory = $150,000; Annual sales = $730,000; Accounts receivable = $180,000; Accounts payable = $36,000; Total annual purchases = $365,000. Calculate the firm's inventory conversion cycle. ______
18 days | |
70 days | |
75 days | |
90 days |
Question 47
Based on information from Question 46, Calculate the firm's receivables collection period. ______
18 days | |
70 days | |
75 days | |
90 days |
Question 48
Based on information from Question 46, Calculate the firm's payables deferral period. ______
18 days | |
36 days | |
75 days | |
90 days |
Question 49
Based on information from Question 46~48, Calculate the firm's cash conversion cycle (CCC). ______
36 days | |
129 days | |
147 days | |
165 days |
Question 50
Which of the following methods can be used to improve the firm's cash conversion cycle? ______
Increase the firm's inventory conversion cycle. | |
Increase the firm's receivables collection period. | |
Increase the firm's payables deferral period. |
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Solution: A company is estimating its optimal capital structure.