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According to the trade-off theory, how is the capital structure determined? Firms have an incentive to add leverage to the capital structure. Briefly describe an incentive to add leverage. Then, refer to Equation 16.10 in the material this week and explain how indirect costs of financial distress affect firms in different ways.
Equation 16.10:
Grommit Engineering expects to have a net income next year of $20.75 million and free cash flow of $22.15 million. Grommit’s marginal corporate tax rate is 35%
a) If Grommit increases leverage so that its interest expense rises by $1 million, how will its net income change?
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Drongo Corporation's 4-year bonds currently yield 7.4 percent. The real risk-free rate of interest, r*, is 2.7 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t - 1), where t is equal to the time to matu..
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As of 2012, per capita spending on health care in the United States was about $10,500. If this amount increased by 3 percent a year, what would be the amount of per capita spending for health care in 10 years?
You have found the following stock quote for RJW Enterprises, Inc., in the financial pages of today’s newspaper. 52-WEEK YLD VOL NET HI LO STOCK (DIV) % PE 100s CLOSE CHG 72.48 53.42 RJW 1.20 2.0 15 17,777 ?? − .55 What was the closing price for this..
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You can deposit $11,000 into an account paying 7% annual interest either today or exactly 10 years from today. ow much better off will you be at the end of 35 years if you decide to make the initial deposit today rather than 10 years from today?
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