Fixed Cost of Goods Sold Gross Profit Variable Operating Expenses Fixed Operating Expenses Operating Income 750,000 750,000 750,000 937,500 1,312,500 1,687,500 450,000 550,000 650,000 200,000 200,000 200,000 287,500 562,500 837,500 750,000 750,000 1,875,000 2,250,000 700,000 200,000 975,000 1,250,000 800,000 200,000 Other pertinent information can be found below: • Depreciation of P500,000 is included in fixed cost of goods sold while P100,000 of depreciation is charged to fixed operating expenses. Income tax rate is 20%. Compute for the following: 1. Net cash flow to the firm 2. Price to pay to buy 20% share in Elias Corporation • Elias Corporation estimates it will need P200,000 cash on an annual basis to sustain its capital investments. • From 2026 until perpetuity, the corporation estimated net cash flows to grow at a constant rate of 4%. • Elias Corporation has debt-to-equity ratio of 1.5. Pre-tax cost of debt is at 4% while cost of equity is at 9%. • Elias Corporation has outstanding loans of P2,000,000.
Fixed Cost of Goods Sold Gross Profit Variable Operating Expenses Fixed Operating Expenses Operating Income 750,000 750,000 750,000 937,500 1,312,500 1,687,500 450,000 550,000 650,000 200,000 200,000 200,000 287,500 562,500 837,500 750,000 750,000 1,875,000 2,250,000 700,000 200,000 975,000 1,250,000 800,000 200,000 Other pertinent information can be found below: • Depreciation of P500,000 is included in fixed cost of goods sold while P100,000 of depreciation is charged to fixed operating expenses. Income tax rate is 20%. Compute for the following: 1. Net cash flow to the firm 2. Price to pay to buy 20% share in Elias Corporation • Elias Corporation estimates it will need P200,000 cash on an annual basis to sustain its capital investments. • From 2026 until perpetuity, the corporation estimated net cash flows to grow at a constant rate of 4%. • Elias Corporation has debt-to-equity ratio of 1.5. Pre-tax cost of debt is at 4% while cost of equity is at 9%. • Elias Corporation has outstanding loans of P2,000,000.
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 12P
Related questions
Question
Transcribed Image Text:Elias Corporation shared the following prospective financial information to a group of private
equity investors. You were tasked to compute for the approximate price that should be set if the
investor buys out 20% share in Elias Company.
2021
2,250,000
562,500
750,000
937,500
450,000
200,000
287,500
2022
2,750,000
687,500
750,000
1,312,500
550,000
200,000
562,500
2023
3,250,000
812,500
750,000
1,687,500
650,000
200,000
837,500
2025
3,500,000 4,000,000
875,000 1,000,000
750,000
2024
Revenues
Variable Cost of Goods Sold
Fixed Cost of Goods Sold
Gross Profit
Variable Operating Expenses
Fixed Operating Expenses
Operating Income
750,000
1,875,000 2,250,000
800,000
700,000
200,000
200,000
975,000 1,250,000
Other pertinent information can be found below:
• Depreciation of P500,000 is included in fixed cost of goods sold while P100,000 of
depreciation is charged to fixed operating expenses.
• Income tax rate is 20%.
• Elias Corporation estimates it will need P200,000 cash on an annual basis to sustain its
capital investments.
• From 2026 until perpetuity, the corporation estimated net cash flows to grow at a
constant rate of 4%.
• Elias Corporation has debt-to-equity ratio of 1.5. Pre-tax cost of debt is at 4% while cost
of equity is at 9%.
• Elias Corporation has outstanding loans of P2,000,000.
Compute for the following:
1. Net cash flow to the firm
2. Price to pay to buy 20% share in Elias Corporation
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