Answer 11

Answer 11
Market
Earnings P/E Ratio
Company
Capitalization (in
(in $) = Market Cap. / Earnings
$)
A 168,041 7,381 22.77
B 123,883 5,618 22.05
C 10,326 620 16.65
D 11,618 357 32.54
E 964 41 23.51
Median 22.77
Based on the Median P/E, the P/E Multiple for the company should be
22.77. Now,
Expected Earnings of Company = $13,423
Median P/E = 22.77
Value of Equity = Expected Earnings * Median P/E
Value of Equity = 13,423 * 22.77 = $305,618
Now,
Value of Equity = $305,618
Value of Debt = $20,000
Cash Balance = $10,000

Enterprise Value = Value of Equity + Value of Debt - Cash Balance
Enterprise Value = 305,618 + 20,000 - 10,000 = $315,618
Thus, the implied enterprise value of the company as per median P/E
should be $315,618. Thus, option (c) is correct.
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nswer to (29) :
~ Cost of goods sold :
= Sales revenue x Cost of goods sold %
= Sales revenue x (100% - Gross profit%)
= $75,000 x (100% - 23.2%)
= $75,000 x 76.8%
= $57,600
~ Payable days :
= [Accounts payable / Cost of goods sold] x 365
= [$3260 / $57,600] x 365
= 0.0566 x 365
= 20.67 days
= 21 days
Payable days = 21
Answer to (28) :
~ Net book value of PP&E :
Beginning Gross Block of PPE 47,200

(+) CAPEX during the month 9,930
= Ending Gross Block of PPE 57,130
(-) Beginning accumulated

14,600
depreciation
(-) Depreciation for the month 801
= Net PP&E 41,729
Answer: Net book value of PP&E = 41,729
42. 48 Based on the information in the table, what is the share price
when the price to earnings (P/E) multiple of a comparable company
is 17x?
Income Million
Statement s
Sales $3,000
EBITDA $2,200
EBIT $1,750
Net Income $1,100
Million
Balance Sheet
s
Cash and Cash
$120
Equivalents
Short Term Interest
$210
Bearing Debt
Long Term Interest
$850
Bearing Debt
BV Equity $1,500
Shares Outstanding in 10
Millions 0
Share Price
$151
$169
$187
$1
Solution :-
Net income = $1100 million
No. Of shares outstanding = 100 million
So, Earning per share ( EPS ) :-
= Net income / No. Of shares outstanding
= $1100 million / 100 million
= $11
P/ E multiple ( Price / Earning ) multiple for a comparable company is 17x.
So, we will take P/E multiple = 17 times for given company for share price
calculation .
So, Share price =
= P/E multiple * Earning per share
= 17 * $11
= $187
So, share price is $187
43 . Since this guage chart is a 180 Degree Pie Chart, we need to convert
the value of 30% in Degree terms. For that we would use the following
formula:
Output in cell C12 = 180 Degree * Value to be shown in guage chart / Total
of all Values
Output in cell C12 = 180 Degree * 30 / 75 = 72 Degrees
Output in Cell C12 should be 72 Degrees
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46 following-actions-alone-return-equity-select-correct-answers-increa-q65731963
Issuing descreas
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49 . Company X Grants 500 Share Options To An

Employee, Which Can Be Exercised At Any Time
Over The Next 5 Years Subject To A 3-Year Service
Condition. The Fair Value Of The Options Is
Determined To Be $50,000 At The Grant Date. How
Will The Share-Based Payment Expense Be
Recognized? Review Later At The End Of The 5-
Year Period Entirely At The Grant Date Over The
Company X grants 500 share options to an employee, which can be
exercised at any time over the next 5 years subject to a 3-year
service condition. The fair value of the options is determined to be
$50,000 at the grant date. How will the share-based payment
expense be recognized?
Review Later
Answer : Over the next 3 years
Explanation
As per ASC 718 Sharebased payment, a grantor recognizes compensation

cost for a share-based payment award over the award’s “requisite service
period.”. In the instant case, the share option granted to the employee is
subject to a 3-year service condition. Hence, the share-based payment
expense will be recognized over the requisite service period ie., over the
next 3 years.
50You're Given The Following Assumptions For
Company Inc.. Suppose Through A Comparable
Company Analysis For Company Inc., You
Determined That The Implied P/E Ratio Is 15.5x.
Based On This Information, Calculate The Implied
Enterprise Value Of Company Inc.. Company Inc.
Share Price
You're given the following assumptions for Company Inc.. Suppose
through a comparable company analysis for Company Inc., you
determined that the implied P/E ratio is 15.5x. Based on this
information, calculate the implied enterprise value of Company Inc..
Company Inc.
Share Price ($/sh.) $196.70
Shares Outstanding (MM) 1,880
Net Debt (Cash) ($MM) $7,452
NTM Revenue ($MM) $73,695
NTM EBITDA ($MM) $39,917
NTM Net Earnings ($MM) $26,520
418000 anwser
Answer:- Option $25,500 is correct.
Calculation of salvage value:-
Capital Expenditure = $20,000
Salvage Value in % = 10%
Useful Life = 4 Years
Salvage Value = Salvage Value% x Capital Expenditure
Salvage Value = 10% x 20,000
Salvage Value = $2,000

Calculation of Annual Depreciaition for capital expenditure made each
year:-
Annual Depreciation = (Capital Expenditures - Salvage Value) / Useful Life
Annual Depreciation = ($20,000 - $2,000) / 4 = $18,000 / 4 =$4,500
Therefore, Annual Depreciation is $4,500
As Capital expenditure of $20,000 is made every year from 2020E to

2023E, Depreciation of 2023E will include Depreciation on those capital
assets from 2020E to 2023E as useful life is 4 years.
Calculation of Depreciation for the year 2023E :-
Depreciation of 2023E = Depreciation Pre 2020E + Depreciation on capital

expenditures in 2020E + Depreciation on capital expenditures in 2021E +
Depreciation on capital expenditures in 2022E + Additional Depreciation on
capital expenditures in 2023E
Depreciation of 2023E = $7,500 + $4,500 + $4,500 + $4,500 + $4,500
Depreciation of 2023E = $25,500
7 1. Debt outstanding = 30,000 - 20,000 = 10,000
interest = 10,000 * 0.04 = 400
2. debt /total capital = 30,000/170,000 = 0.18
Weights of Debt and Equity in XYZ :
~ Total capital = [Debt + Equity] = [$20,000 + $60,000] = $80,000
~ Debt weight = Debt/Total = 20,000/80,000 = 0.25
~ Equity weight = Equity/Total = 60,000/80,000 = 0.75
~ Weighted-average cost of capital (WACC) :
= (Debt weight)(Interest rate)(1 - tax rate) + (Equity weight)(Cost of equity)
= (0.25)(6%)(1 - 0.30) + (0.75)(9.65%)
= 1.05% + 7.25%
= 8.30%
Answer: XYZ's WACC = 8.30%
Based on comparable trading metrics, what is the implied enterprise value if

the median P/E ratio is used as the basis for valuation?
Market P/E Ratio

Earnings
ompany
Capitalization = Market Cap. /
(in $)
(in $) Earnings
A 168,041 7,381 22.77
B 123,883 5,618 22.05
C 10,326 620 16.65
D 11,618 357 32.54
E 964 41 23.51
Median 22.77
Based on the Median P/E, the P/E Multiple for the company should be
22.77. Now,
Expected Earnings of Company = $13,423
Median P/E = 22.77
Value of Equity = Expected Earnings * Median P/E
Value of Equity = 13,423 * 22.77 = $305,618
Now,
Value of Equity = $305,618
Value of Debt = $20,000
Cash Balance = $10,000
Enterprise Value = Value of Equity + Value of Debt - Cash Balance
Enterprise Value = 305,618 + 20,000 - 10,000 = $315,618
Thus, the implied enterprise value of the company as per median P/E
should be $315,618. Thus, option (c) is correct.
Question-1
Answer (B)-$13,356
Forcast Cost of Goods Sold for 2019
2018 Actual 2019 Estimate
Sales Growth 5% 6%
Gross Margin 35% 40%
Revenues $21,000 $22,260
Cost of Goods
$13,650 $13,356
Sold
Sales Growth for 2019=6% over 2018 actual Revenue
Revenue for 2019 = $21,000*(1+6%)
= $22,260
Gross Margin for 2019=40%
40%= Gross Margin/Revenue
Gross Profit for 2019 =$22,260*40%
=$8,904
COGS for 2019= Revenue for 2019 -Gross Profit for 2019
= $22,260-$8,904
=$13,356
Solution to the FIRST QUESTION
Weighted average cost of capital (WACC)
Weighted average cost of capital (WACC) = [After tax cost of debt x Weight of
debt] + [Cost of equity x Weight of equity]
Weighted average cost of capital (WACC) = [(6.00% x (1 - 0.30) x ($100 Million /

$350 Million)] + [11.00% x ($250 Million / $350 Million)]
Weighted average cost of capital (WACC) = [4.20% x 0.2857] + [11.00% x

0.7143]
Weighted average cost of capital (WACC) = 1.20% + 7.86%
Weighted average cost of capital (WACC) = 9.06%
Hence, the Weighted average cost of capital (WACC) is 9.06%

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Answer 11

A 168,041 7,381 22.77

B 123,883 5,618 22.05

C 10,326 620 16.65

D 11,618 357 32.54

Expected Earnings of Company = $13,423

Median P/E = 22.77

Value of Equity = Expected Earnings * Median P/E

Value of Equity = 13,423 * 22.77 = $305,618

Value of Equity = $305,618

Value of Debt = $20,000

Cash Balance = $10,000

Enterprise Value = 305,618 + 20,000 - 10,000 = $315,618

~ Cost of goods sold :

= Sales revenue x Cost of goods sold %

= Sales revenue x (100% - Gross profit%)

= $75,000 x (100% - 23.2%)

= [Accounts payable / Cost of goods sold] x 365

= [$3260 / $57,600] x 365

~ Net book value of PP&E :

Beginning Gross Block of PPE 47,200

= Ending Gross Block of PPE 57,130

(-) Beginning accumulated

(-) Depreciation for the month 801

= Net PP&E 41,729

Answer: Net book value of PP&E = 41,729

Net income = $1100 million

No. Of shares outstanding = 100 million

So, Earning per share ( EPS ) :-

= Net income / No. Of shares outstanding

= $1100 million / 100 million

P/ E multiple ( Price / Earning ) multiple for a comparable company is 17x.

So, Share price =

= P/E multiple * Earning per share

So, share price is $187

Output in cell C12 = 180 Degree * 30 / 75 = 72 Degrees

Output in Cell C12 should be 72 Degrees

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49 . Company X Grants 500 Share Options To An

Answer : Over the next 3 years

As per ASC 718 Sharebased payment, a grantor recognizes compensation

Answer:- Option $25,500 is correct.

Calculation of salvage value:-

Capital Expenditure = $20,000

Salvage Value in % = 10%

Useful Life = 4 Years

Salvage Value = Salvage Value% x Capital Expenditure

Salvage Value = 10% x 20,000

Salvage Value = $2,000

Annual Depreciation = (Capital Expenditures - Salvage Value) / Useful Life

Annual Depreciation = ($20,000 - $2,000) / 4 = $18,000 / 4 =$4,500

Therefore, Annual Depreciation is $4,500

As Capital expenditure of $20,000 is made every year from 2020E to

Calculation of Depreciation for the year 2023E :-

Depreciation of 2023E = Depreciation Pre 2020E + Depreciation on capital

Depreciation of 2023E = $7,500 + $4,500 + $4,500 + $4,500 + $4,500

Depreciation of 2023E = $25,500

7 1. Debt outstanding = 30,000 - 20,000 = 10,000

interest = 10,000 * 0.04 = 400