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Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 25% debt and 75% common equity. Its last dividend (D0) was $1.80, its expected constant growth rate is 4%, and its common stock sells for $24. EEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 14%, and Project B's return is 10%. These two projects are equally risky and about as risky as the firm's existing assets. What is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. % What is the WACC? Round your answer to two decimal places. Do not round your intermediate calculations. % Which projects should Empire accept?
At what interest rate would Randy be financially indifferent between these two payout choices?
Samsung has no other investment opportunities. Assume all cash flows are received at the end of each year. What is the price per share of Samsung?
Suppose you constructed a pro forma balance sheet for a construction company and the estimate for external financing required was negative.
Assess and explain if there are any similarities in the anti-tax avoidance measures and rules between the two tax systems.
Ms. Child is considering the purchase of a new food packaging system. What is the equivalent uniform annual worth (EUAW) of this system?
Gerenuk Company currently produces a key part at a total cost of $120,000. Annual variable costs are $35,000. Of the annual fixed costs, $12,000 relate specifically to this part. The remaining fixed costs are unavoidable. Alternatively, the facilitie..
Assume also that the bond pays interest semi-annually, rather than annually. Given this new information, calculate the market value of this bond today at t = 0.
The Bar-none manufacturing co. manufactures fence used in cattle feed lost throughout the Midwedst. bar-none management is considering three investment project for next year but doesn't one to make and any investment that requires more than three yea..
O’Connell & Co. expects its EBIT to be $74,000 every year forever. The firm can borrow at 7 percent. O’Connell currently has no debt, and its cost of equity is 12 percent and the tax rate is 35 percent. The company borrows $125,000 and uses the proce..
Suppose that you buy an interest rate cap on three month LIBOR with a two year maturity and simultaneously sell a floor on three month LIBOR with a two year maturity. Ignore the premiums. Draw a profit diagram that indicates when you will gain and lo..
A “bond rating” reflects the default risk of a firm’s bonds as judged by one or more rating agencies.
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. The fixed asset will be depreciated straight-line over its three-year tax life, and the fixed asset will have a marke..
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