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The following facts appy to your company:
Target capital structure: 50% debt; 50% equity.
EBIT $200 million.
Assets $500 million.
Tax rate: 40%
Cost of new and old debt: 8%.
Based on the residual distribution policy (with all distributions in the form of dividends), the payout ratio is 60 percent. How large (in millions of dollars) will the capital budget be? Show solution step by step.
If a portfolio had a return of 15%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 30%, the Sharpe measure would be ______ .
Big Sky Hospital plans to obtain a new MRI that costs $2.5 million and has an estimated four-year useful life. It can obtain a bank loan for the entire amount and buy the MRI or it can lease the equipment. Assume that the following facts apply to the..
Company XYZ is expected to grow at 10% annually forever, and its dividend in the next 12 months is expected to be $2.50, and its required rate of return is 17.5%. What is its intrinsic value? If the current price is equal to its intrinsic value, what..
You are considering purchasing an apartment building for 1.2 million dollars. You expect the yearly cash inflows for the first three years to be $175,000 and year 4 and 5 will be $200000 and 250,000 respectively. At hte end of year 5 you sell the bui..
The market capitalization rate for Admiral Motors Company is 9%. Its expected ROE is 15% and its expected EPS is $7. If the firm’s plowback ratio is 40%. Calculate the growth rate and P/E ratio
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Assume that a new project will annually generate revenues of $2,300,000 and cash expenses (including both fixed and variable costs) of $700,000, while increasing depreciation by 170,000 per year. In addition the firm’s tax rate is 33%. Calculate the ..
Knepp then mentions that CM2 will begin offering a six-month warranty on its RFID product. The forecasted income statement includes estimated warranty expense accrual of $100,000; one-fourth of this amount will be settled in 2013 through actual claim..
Suppose the returns on large-company stocks are normally distributed. Also suppose large-company stocks had an average return of 11.8% and a standard deviation of 20.3%. Determine the probability that in any given year you will lose money by investin..
Three put options on a stock have the same expiration date and strike prices of $55, $60, and $65. The market prices are $3, $5, and $8, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strate..
vWhat circumstances warrant such a "prepayment" of the existing bond? Why would the issuer wish to repay the bond prior to its original maturity date? What types of "callable bonds" have you issued? What are your thoughts about the benefits and detri..
My small business recently sent an invoice for consulting fees, of $8,000 to a client company on Dec 20, 2012. The terms were 2/10, 1.5/15, 1/30, n/60. The client sent a partial payment of $2,500.00 on January 5, 2013. What is the remaining balance?
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