SOLUTIONS TO END-OF-CHAPTER PROBLEMS 2-1 Corporate yield = 9%; T = 35.5% AT = 9%(1 - T) = 9%(0.645) = 5.76%. 2-2 Corporate bond yields 8%. Municipal bond yields 6%. 2-3 NI = $6,000,000; EBIT = $13,000,000; T = 40%; Interest = ? Need to set up an income statement and work from the bottom up. EBIT $13,000,000 Interest 3,000,000 EBT $10,000,000 EBT = Taxes (40%) 4,000,000 NI $6,000,000 Interest = EBIT EBT = $13,000,000 $10,000,000 = $3,000,000. – – 2-4 EBITDA = $8,000,000; NI = $2,400,000; Int = $2,000,000; T = 40%; DA = ? EBITDA $8,000,000 DA 2,000,000 EBITDA DA = EBIT; DA = EBITDA EBIT – – EBIT $6,000,000 EBIT = EBT + Int = $4,000,000 + $2,000,000 Int 2,000,000 (Given) EBT $4,000,000 Taxes (40%) 1,600,000 NI $2,400,000 (Given) 2-5 NI = $3,100,000; DEP = $500,000; AMORT = 0; NCF = ? NCF = NI + DEP and = $3,100,000 + $500,000 = $3,600,000. 2-6 NI = $70,000,000; R/EY/E = $900,000,000; R/EB/Y = $855,000,000; Dividends = ? R/EB/Y + NI Div = R/EY/E – $855,000,000 + $70,000,000 Div = $900,000,000 – $925,000,000 Div = $900,000,000 – $25,000,000 = Div. 2-7 Income $365,000 Less Interest deduction (50,000)
SOLUTIONS TO END-OF-CHAPTER PROBLEMS 2-1 Corporate yield = 9%; T = 35.5% AT = 9%(1 - T) = 9%(0.645) = 5.76%. 2-2 Corporate bond yields 8%. Municipal bond yields 6%. 2-3 NI = $6,000,000; EBIT = $13,000,000; T = 40%; Interest = ? Need to set up an income statement and work from the bottom up. EBIT $13,000,000 Interest 3,000,000 EBT $10,000,000 EBT = Taxes (40%) 4,000,000 NI $6,000,000 Interest = EBIT – EBT = $13,000,000 – $10,000,000 = $3,000,000. 2-4 EBITDA = $8,000,000; NI = $2,400,000; Int = $2,000,000; T = 40%; DA = ? EBITDA $8,000,000 DA 2,000,000 EBITDA – DA = EBIT; DA = EBITDA – EBIT EBIT $6,000,000 EBIT = EBT + Int = $4,000,000 + $2,000,000 Int 2,000,000 (Given) EBT $4,000,000 Taxes (40%) 1,600,000 NI $2,400,000 (Given) 2-5 NI = $3,100,000; DEP = $500,000; AMORT = 0; NCF = ? NCF = NI + DEP and = $3,100,000 + $500,000 = $3,600,000. 2-6 NI = $70,000,000; R/EY/E = $900,000,000; R/EB/Y = $855,000,000; Dividends = ? R/EB/Y + NI – Div = R/EY/E $855,000,000 + $70,000,000 – Div = $900,000,000 $925,000,000 – Div = $900,000,000 $25,000,000 = Div. 2-7 Income $365,000 Less Interest deduction (50,000)
BE%20Sols_FM14e_SM_Ch02.docx