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Question (Category: homework )
for neobr1. the kimberly corporation is a zero growth firm with an expected ebit of $100,000 and a corporate tax rate of 30%. kimberly uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. what is the value of the firm according to mm with corporate taxes?br a) $475,875br b) $528,750br c) $587,500br d) $646,250br e) $710,875brbr2. the fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis.a. trueb. falsebr a) truebr b) falsebrbr3. firms hd and ld are identical except for their level of debt and the interest rates they pay on debt--hd has more debt and pays a higher interest rate on that debt. based on the data given below, what is the difference between the two firms' roes? applicable to both firms firm hd's data firm ld's data assets $200 debt ratio 50% debt ratio 30% ebit $40 interest rate 12% interest rate 10% tax rate 35%br a) 2.18%br b) 2.29%br c) 2.41%br d) 2.54%br e) 2.66%brbr4. in general, firms should use their weighted average cost of capital (wacc) to evaluate capital budgeting projects because most projects are funded with general corporate funds, which come from a variety of sources. however, if the firm plans to use only debt or only equity to fund a particular project, it should use the after-tax cost of that specific type of capital to evaluate that project. a. trueb. falsebr a) truebr b) falsebrbr5. clayton industries is planning its operations for next year, and ronnie clayton, the ceo, wants you to forecast the firm?s additional funds needed (afn). data for use in your forecast are shown below. based on the afn equation, what is the afn for the coming year? dollars are in millions. last year's sales = s0 $350 last year's accounts payable $40sales growth rate = g 30% last year's notes payable (to bank) $50last year's total assets = a0 $500 last year's accruals $30last year's profit margin = m 5% target payout ratio 60%br a) $102.8br b) $108.2br c) $113.9br d) $119.9br e) $125.9brbr6. taussig technologies is considering two potential projects, x and y. in assessing the projects?risks, the company estimated the beta of each project versus both the company?s other assets and the stock market, and it also conducted thorough scenario and simulated analyses. this research produced the following numbers: project x project y expected npv $350,000 $350,000 standard deviation (?npv) $100,000 $150,000 project beta (vs. market) 1.4 0.8 correlation of the project cash flows with cash flows from currently existing projects. cash flows are not correlated with the cash flows from existing projects. cash flows are highly correlated with the cash flows from existing projects. which of the following statements is correct?br a) project x has more stand-alone risk than project y.br b) project x has more corporate (or within-firm) risk than project y.br c) project x has more market risk than project y.br d) project x has the same level of corporate risk as project y.br e) project x has less market risk than project y.brbr7. the capital intensity ratio is generally defined as follows:br a) sales divided by total assets, i.e., the total assets turnover ratio.br b) the percentage of liabilities that increase spontaneously as a percentage of sales.br c) the ratio of sales to current assets.br d) the ratio of current assets to sales.br e) the amount of assets required per dollar of sales, or a*s0.brbr8. akyol corporation is undergoing a restructuring, and its free cash flows are expected to be unstable during the next few years. however, fcf is expected to be $50 million in year 5, i.e., fcf at t=5 equals $50 million, and the fcf growth rate is expected to be constant at 6% beyond that point. if the weighted average cost of capital is 12%, what is the horizon value (in millions) at t=5?br a) $713br b) $757br c) $797br d) $839br e) $883brbr9. which of the following should be considered when a company estimates the cash flows used to analyze a proposed project?br a) the new project is expected to reduce sales of one of the company?s existing products by 5%.br b) since the firm?s director of capital budgeting spent some of her time last year to evaluate the new project, a portion of her salary should be charged to the project?s initial cost.br c) the company has spent and expensed $1 million on rd associated with the new project.br d) the company spent and expensed $10 million on a marketing study before its current analysis regarding whether to accept or reject the project.br e) the firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million per year.brbr10. firm l has debt with a market value of $200,000 and a yield of 9%. the firm's equity has a market value of $300,000, its earnings are growing at a rate of 5%, and its tax rate is 40%. a similar firm with no debt has a cost of equity of 12%. under the mm extension with growth, what is firm l's cost of equity?br a) 11.4%br b) 12.0%br c) 12.6%br d) 13.3%br e) 14.0%brbr11. which of the following statements is correct?br a) one disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company.br b) one advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account.br c) stock repurchases can be used by a firm that wants to increase its debt ratio.br d) stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years, provided investors are aware of these investment opportunities.br e) one advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding.brbr12. the miller model begins with the mm model with taxes and then adds personal taxes. a. trueb. falsebr a) truebr b) falsebrbr13. the phenomenon called ?multiple internal rates of return? arises when two or more mutually exclusive projects that have different lives are being compared. a. trueb. falsebr a) truebr b) falsebrbr14. a group of venture investors is considering putting money into lemma books, which wants to produce a new reader for electronic books. the variable cost per unit is estimated at $250, the sales price would be set at twice the vcunit, fixed costs are estimated at $750,000, and the investors will put up the funds if the project is likely to have an operating income of $500,000 or more. what sales volume would be required in order to meet this profit goal?br a) 4,513br b) 4,750br c) 5,000br d) 5,250br e) 5,513brbr15. suppose leonard, nixon, shull corporation?s projected free cash flow for next year is $100,000, and fcf is expected to grow at a constant rate of 6%. if the company?s weighted average cost of capital is 11%, what is the value of its operations?br a) $1,714,750br b) $1,805,000br c) $1,900,000br d) $2,000,000br e) $2,100,000brbr16. leak inc. forecasts the free cash flows (in millions) shown below. if the weighted average cost of capital is 11% and fcf is expected to grow at a rate of 5% after year 2, what is the year 0 value of operations, in millions? assume that the roic is expected to remain constant in year 2 and beyond (and do not make any half-year adjustments). year: 1 2 free cash flow -$50 $100br a) $1,456br b) $1,529br c) $1,606br d) $1,686br e) $1,770brbr17. blease inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60% debt and 40% equity. the company forecasts a net income of $475,000. if it follows the residual dividend policy, what is its forecasted dividend payout ratio?br a) 40.61%br b) 42.75%br c) 45.00%br d) 47.37%br e) 49.74%brbr18. last year godinho corp. had $250 million of sales, and it had $75 million of fixed assets that were being operated at 80% of capacity. in millions, how large could sales have been if the company had operated at full capacity?br a) $312.5br b) $328.1br c) $344.5br d) $361.8br e) $379.8brbr19. the kimberly corporation is a zero growth firm with an expected ebit of $100,000 and a corporate tax rate of 30%. kimberly uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. what is the firm's cost of equity?br a) 21.0%br b) 23.3%br c) 25.9%br d) 28.8%br e) 32.0%brbr20. bankston corporation forecasts that if all of its existing financial policies are adhered to, its proposed capital budget would be so large that it would have to issue new common stock. since new stock has a higher cost than retained earnings, bankston would like to avoid issuing new stock. which of the following actions would reduce its need to issue new common stock?br a) increase the percentage of debt in the target capital structure.br b) increase the dividend payout ratio for the upcoming year.br c) increase the proposed capital budget.br d) reduce the amount of short-term bank debt in order to increase the current ratio.br e) reduce the percentage of debt in the target capital structure. p
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xxxx xxxxxberg, ceo of mcdonaldrsquos corporation, stared into the clear september skiesbrthinking about the ldquobig mac attack.rdquo at one time, the term was an advertising sloganbrreferring to a craving for a mcdonaldrsquos big mac burger. however, ldquobig mac attackrdquo nowbrreferred to mcdonaldrsquos earnings declines in the late 1990s and early 2000s. dynamicbrmarket expansion, new products, and special promotional strategies had made mcdonaldrsquosbrcorporation a leader of the fast-food industry. however, sales growth in the united statesbrhad slowed to below the industry average in recent years. xxxx xxxxxberg was trying tobrdecide on a set of appropriate strategies for the future in order to reverse the declines andbrto stay ahead of competition.brthe fast-food industrybryears of profit drains and flat sales are driving fast-food chains to find new marketingbrstrategies to compete in a mature market. while mcdonaldrsquos and most other hamburgerbra major change in the fast-food industry is the increase in the fast-casual segment thatbrincludes restaurants like boston market, panera bread company, and atlanta bread company.brthese chains offer deli sandwiches and meals that are more upscale than traditionalbrfast food, served in nicer restaurants with more comfortable surroundings, but faster thanbrin traditional restaurants. it is estimated that the fast-casual sector is growing from 15 to 20brpercent per year, while growth in the quick service sector is only about 2 percent a year.brldquopeople are willing to pay a couple dollars more for a better dining experience, yet donrsquotbrwant to sacrifice the convenience of quick service. fast-casual combines all the elementsbrfor what the on-the-go consumermdashwhich seems to be almost everyone these daysmdashisbrlooking for,rdquo said one analyst.1bramericans are eating out less often compared to previous years and eating habits arebrchanging.2 though the recession is a major reason why folks arenrsquot eating out as much atbrupscale restaurants, itrsquos another story at fast-food restaurants. many younger consumers arebrgetting tired of fast food and are thinking about their health. there seems to be a growingbrdissatisfaction with the quality aspect of the mcdonaldrsquos and burger kings of the world. itrsquosbrnot just young adults who are turning away from fast food. baby boomers are also looking forbrldquobetterrdquo alternlooking for hits to reverse earnings declines, mcdonaldrsquos accelerated plans forbrldquonew tastes menurdquo items.4 products for limited-time offers included a fried chickenbrsandwich of tenderloin strips under the chicken selects name, a new grilled chickenbrsandwich, a brownie, a pork tenderloin sandwich, and a philly cheese steak sandwich.brfacing competitorsrsquo chicken sandwiches, like wendyrsquos spicy chicken filet and burgerbrkingrsquos chicken whopper, mcdonaldrsquos put chicken menu items at the forefront of its offerings.brthe chain also added a chicken-honey biscuit item to its menu. other entries includedbra breakfast steak burrito similar to an existing sausage version, hot dog mcnuggets forbrkids, and an italian-style burger similar to the chicken parmesan. the mcrib sandwichbrwas reintroduced.brmcdonaldrsquos advertising message focused on tasty and nutritious food, friendly folks,brand fun. the company invested heavily in advertising its product and improving its publicbrimage. mcdonaldrsquos annual charity christmas parade in chicago and its ronald mcdonaldbrhouse charity provided the company with a positive corporate image. much of its promotionalbrbudget was spent on games, giveaways and deals, including monopoly ii, scrabble,bra kraft salad dressing give-away, happy meals, plush toys, in-store kid videos, and variousbrbig macndashrelated deals.brmcdonaldrsquos opened its first domestic mccafe with the expectation that the gourmetbrcoffee shop would move it closer to its goal of doubling sales at existing u.s. restaurantsbrover the next decade.5 the 32-seat mccafe occupies a 900-square-foot space that sharesbran entrance with a traditional mcdonaldrsquos restaurant. the menu features a selection ofbrspecialty drinks, including cappuccinos, lattes, teas, and fruit smoothies served via abrlimited service front counter. enhancing the coffee bar is a glass display case filled with abrvariety of high-end cakes, pastries, cookies and soft pretzels. customers can place carryoutbrorders that are packaged in disposable containers. if patrons opt to dine in the cafe, allbrdrinks and food items are served on china with stainless steel flatware. mccafe originatedbrin australia in 1993 and has grown to more than 300 units in 17 countries. the gourmetbrcoffee concept was created to be placed within or adjacent to existing mcdonaldrsquos restaurants.brmcdonaldrsquos estimates that the new concept will boost sales by 15 percent. at mccafe,brcappuccino drinks start at $2.49 featuring a coffee imported from italy. the drink menubrincludes specialty coffees, listed as ldquocaramel cream steamer,rdquo ldquofrench vanillardquo and ldquomilkybrway.rdquo the pastries, including tiramisu, cheesecake, apple tart and muffins, range in pricebrfrom $1.59 to $2.59. many of the items are baked on-site and the others are prepared dailybrby various local suppliers. in addition to three on-premise bakers, the cafe has a staff of 15brwith about six employees working each shift. created to enhance an upscale coffee shopbrenvironment, the cafersquos decor features lace curtains, mahogany accents, a leather couch, anbrantique mirror, wall sconces, and fresh flowers.brmajor competitors in the hamburger segmentbrmcdonaldrsquos has three major competitors in the hamburger segment. these include burgerbrking, hardeersquos and wendyrsquos. both burger king and wendyrsquos have had small gains inbrmarket share while hardeersquos lost share.brburger king corp.brburger king corp., in its ongoing effort to increase sales and market share, offered a newbrsalad line and a permanent array of value-priced offerings, endeavors already under way atbrits fast-food competitors. the nationrsquos number 2 burger chain, hoping to show signs of aatives and fast food is not as appealing to this large group who frequently eat out.brturnaround in order to expedite its pending separation from parent diageo plc of london,brdebuted more than 10 new or improved products, including the chicken whopper, whichbrofficials said stimulated sales growth. the menu overhaul is one part of a major turnaroundbrstrategy engineered by burger kingrsquos chairman and chief executive, john dasburg, whobrjoined the chain in 2000.bras part of bkrsquos sweeping transformation program, restaurant operators had to makebrextensive kitchen and drive-through upgrades. the chicken whopper, which debuted inbr2001, generated ldquoan enormous amount of trialrdquo that led to double-digit same-store-salesbrgrowth at restaurants. burger king is developing a more permanent marketing strategy andbrmoving away from its previous tactical approach, which revolved around the monthlybrchanges in menu items and deals.brhardeersquosbrhardeersquos parent, cke restaurants inc., owns or franchises 2,784 hardeersquos and 112 tacobrbueno restaurants and showed a 15 percent decline in net income in a recent quarter. thebrchain posted year-to-year quarterly declines of 4.8 percent in company-owned same-storebrsales. the efforts to reverse slowing but continuing sales erosion at hardeersquos, the industryrsquosbrnumber 4 burger chain, had dominated managementrsquos attention in its conversion ofbrhardeersquos to a format called ldquostar hardeersquos.rdquobrthe company attempted to reverse sliding sales by introducing new items on the menubrand joining the price-promotion burger wars. the company tested individual item discountsbrat most of hardeersquos company-owned units. franchisees in selected markets offeredbrsandwiches bundled with regular-sized french fries and a soft drink for $2.99. other newbrhardeersquos sales-spiking tactics included its midpriced sandwich option, the famous baconbrcheeseburger for $1.59, and a new croissant sunrise breakfast sandwich for $1.79. thebrchain hoped to increase breakfast sales by at least 2 percent currently breakfast itemsbraccount for approximately 10 percent of hardeersquos sales.brcke also owns or franchises 878 upscale fast-food chains, carlrsquos jr. it rolled out a premiumbrsandwich product that had first debuted on the hardeersquos menu in 1994 and recentlybrwas second only to the carlrsquos jr.rsquos $3.99 sirloin steak sandwich in trial markets.brwendyrsquos internationalbrwendyrsquos has had the strongest same-store-sales gains of the major burger chains in recentbryears. chain officials and wall street analysts attributed at least part of the growth tobrwendyrsquos line of four upscale salads called ldquogarden sensations.rdquo the nationrsquos no. 3 burgerbrchain holds an enviable positionmdashanalysts consistently rank it ahead of chief rivals inbrquality, customer satisfaction, innovation, and unit-level sales. citing wendyrsquos plannedbr30 percent boost in media outlays to an estimated $308 million in 2002 and its strong focusbron in-store operations, one analyst stated, ldquothis one-two punch looks like a formidable foebrfor rival chains to face this year.rdquo6wendyrsquos same-store sales were expected to grow 3 percentbrin 2002, eclipsing the 2 percent projections for tricon global restaurantsrsquo taco bell andbrkfc, and a 1 percent to 2 percent projection for mcdonaldrsquos corp.brwendyrsquos product line includes four core menu items: burgers, chicken sandwiches, itsbrvalue menu, and its garden sensations salads. the salad line is designed to provide custombrtaste comparable to salads offered by casual-dining chains and includes the $3.99 chickenbrblt, taco supremo, mandarin chicken, and $2.99 spring mix salads. the gardenbrsensations line was expected to contribute 5 percent to total wendyrsquos sales.7 the gradual shift of consumer preference toward hamburger substitutes has created strongbrcompetitors for mcdonaldrsquos. three of the major competitors offering nonhamburger fastbrfoods are pizza hut, kentucky fried chicken, and taco bell.brpizza hutbrpizza hut dominates the pizza segment with 22 percent of all restaurant pizza sales in thebrcountry, with dominorsquos lagging far behind with about 11 percent of sales. papa johnrsquos hasbrsteadily expanded to the point where it is the countryrsquos fourth largest pizza chain behindbrlittle caesars.brpizza hut is owned by tricon global restaurants, which also owns kfc and taco bell.brit scored a major success with its prsquozone, a portable, calzone-like item that company officialsbrcall ldquothe pizza that actually sold out in test market.rdquo8 the $70 million national productbrlaunch featured the prsquozone for $5.99, or two for $10.99. each pie is made with a 12-inchbrtraditional crust, a layer of sliced mozzarella cheese and a choice of three different ingredientbrcombinations: pepperoni a mixture of meats that includes pepperoni, sausage, beefbrand ham or sausage with green peppers and red onions. the prsquozone exceeded expectationsbrand drove same-store sales up 7 percent to 8 percent. pizza hutrsquos latest effort was called ldquoabrwell-executed, differentiated, yet value-oriented product that would drive traffic and salesbrover the next several periodsrdquo9 by one industry analyst.brkfcbrkfc (kentucky fried chicken) operates 11,000 global outlets of which 5,400 are in thebrunited states. its recent strategies included a ldquokids lap top packrdquo meal program to attractbrmore kids and families to its food offerings. kfc planned to introduce the meals as part ofbrits new product lineup for 2002.10 roughly 80 percent of kfcrsquos domestic stores signed upbrto offer the kidsrsquo meals, which featured more food and variety of choices. the meals arebrpriced at $2.99 and offer 18 different food combinations. the kidsrsquo meal containers,brdesigned to open as a laptop computer, featured colorfully illustrated interactive puzzlesbrand games. the idea built upon the latest batch of kidsrsquo meals launched previously, whichbrintroduced an education theme with crossword puzzles, word searches, and mazes. kfcbrtook away the staple of most kids mealsmdashthe plastic toymdashafter company research foundbrthat children, especially older ones, were not interested in them. instead, the new mealsbrincluded stickers or a paper-based prize. the chain doesnrsquot expect the new meal to generatebrsubstantial returns immediately. ldquothis is about brand building itrsquos not about building salesbrtoday,rdquo11 said a company spokesperson.brother new products at kfc for 2002 included a meal of three spicy blazinrsquo crispybrstrips with a choice of side and a biscuit priced at $2.99 and the blazinrsquo buffalo twisterbrsandwich and a beverage in the price range of $2.29 to $2.79. in fiscal 2001, kfc led itsbrsister brands, pizza hut and taco bell, in same-store sales at u.s. company-owned stores,brposting growth of 3 percent. the dramatic rebound in sales at taco bell and a 19 percent increase in 2001 profits werebrdue to a strategy shift to higher-priced products, like the grilled stuft burrito and chickenbrquesadilla.12 taco bellrsquos success with high-priced offerings proved that the brand couldbrleverage its strengths to bring up the average meal price, as well as appeal to light andbrmedium users.13 taco bell planned to add more grilled extensions with higher qualitybrtortillas, beef and beans, and sell them at non-discounted prices. officials said taco bellbrwould continue to experiment with ingredients, such as fish and pork, that are unique tobrfast food.brmcdonaldrsquos futurebrxxxx xxxxxberg recognized the difficult task the company faced in trying to grow sales,brmarket share and profits in a fiercely competitive industry. he recognized the strengths ofbrcompetitors in the burger segment but also knew that other providers of fast food and otherbrmeals were quick to take advantage of changes in customer preferences and tastes. hebrknew he had to counter attack the ldquobig mac attackrdquo and find market opportunities forbrmcdonaldrsquos.br p div


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