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Dfl and dtl bug ltd currently has issue bonds

Mt Helen

This exam represents 20 percent of the marks for this unit. It is to be completed in groups of up to 3 persons.

  • Efficient use of the spreadsheet functions and facilities: formulas, cell names, documentation, all variables in “input” section, etc.

Question 1.

Bug Ltd is considering purchasing a new widget making machine which will cost $10,000,000.

Bug Ltd has the following options to finance the purchase.

  1. Given an EBIT of $2,500,000, calculate the EPS of the options.

  2. Calculate the EBIT indifference point for the options.

  1. At this growth rate what is the addition to retained earnings?

  2. To maintain the current debt/equity ratio how much debt and how much equity is required?

  3. What would happen if the growth rate was zero? How do you interpret this?

Question 4.

Cash Price per Unit $ 50.00
Variable Cost per Unit $ 40.00
Current Quantity Sold per Month 1000
Quantity Sold under New Policy 1150
Monthly Required Return 2.00%
Terms 30 days
  1. Calculate the NPV associated with a One-Time Sale.

  2. Calculate the NPV associated with a repeat sale.

  1. Calculate the NPV of the acquisition

  2. Calculate the value of the combined companies

  1. Calculate the NPV of the takeover

  2. Calculate the gain or loss to A Ltds shareholders

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