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FIN 534 – Homework Set #5

FIN 534 – Homework Set #5 PLDZ-3434
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Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of Strayer University. FIN 534 Homework Set #5 Page 1 of 2

 Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. This homework assignment is worth 100 points.

Use the following information for Questions 1 through 3:

Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million. However, in 2014 earnings are expected to jump to $12.6 million, and Boehm plans to invest $7.3 million in a plant expansion. This one-time unusual earnings growth won’t be maintained, though, and after 2014 Boehm will return to its previous 8% earnings growth rate. Its target debt ratio is 35%.

Calculate Boehm’s total dividends for 2014 under each of the following policies:

Use the following information for Questions 5 and 6:

Schweser Satellites Inc. produces satellite earth stations that sell for $100,000 each. The firm’s fixed costs, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm’s assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $4 million to investment and $500,000 to fixed operating costs. This change will (1) reduce variable costs per unit by $10,000 and (2) increase output by 20 units, but (3) the sales price on all units will have to be lowered to $95,000 to permit sales of the additional output. The firm has tax loss

carryforwards that render its tax rate zero, its cost of equity is 16%, and it uses no debt.

 

FIN 534 – Homework Set #5

© 2014 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of Strayer University. FIN 534 Homework Set #5 Page 2 of 2

Use the following information for Questions 7 and 8:

Suppose you are provided the following balance sheet information for two firms, Firm A and Firm B (in thousands of dollars). Firm A

Firm B

Current assets

$150,000

$120,000

Fixed assets (net)

150,000

180,000

Total assets

$300,000

$300,000

Current liabilities

$20,000

$80,000

Long-term debt

80,000

20,000

Common stock

100,000

100,000

Retained earnings

100,000

100,000

Total liabilities and equity

$300,000

$300,000

 

Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permissi
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