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Question: Cleopatra's Resorts Incorporated has a current capital structure that is 60 percent equity, 30 percent debt, and 10 percent preferred stock. This is considered optimal. Cleopatra's is considering a $100 million capital budgeting project. During the coming year Cleopatra's expects to have $20 million of retained earnings available to finance this capital budgeting project. The marginal tax rate is 40 percent.
• Cleopatra's can sell $1,000 par value bonds with a 9 percent coupon rate to net $980 after issuance costs. The bonds mature in 15 years, and coupon payments are paid annually.
• Preferred stock can be sold at a $50 price with a $5 annual dividend. Flotation or issuance costs will be $3 per preferred share.
• Common stock can be sold at a $25 price. The common dividend is expected to be $3.00 next year. Dividends have been growing at an annual compound rate of 4 percent annually and are expected to continue growing at that rate into the foreseeable future. Flotation or issuance costs will be $4 per common share.
Calculate Cleopatra's weighted average cost of capital that is appropriate to use in evaluating this capital budgeting project. What is the weighted average cost of capital?
The Sarbanes-Oxley Act of 2002 (SOX) was passed as the result of the Enron scandal and other instances of accounting fraud. This act was passed to strengthen the role of the Securities and Exchange Commission (SEC).
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Discuss how the above transactions affect the basic accounting equation for the companies involved. What risks are posed when a company pursues such a strategy? What are the benefits of such a decision?
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You are given the following information for Calvani Pizza Co.: sales = $38,000; costs = $21,000; addition to retained earnings = $5,000; dividends paid = $1,500; interest expense = $5,000; tax rate = 35 percent. Calculate the depreciation expense.
Calculate the return and standard deviation for the following stock, in an economy with five possible states. If a Boom (Probability=25%) economy occurs, then the expected return is 50%.
1.What are the four business level cooperative strategies and what are the differences among them? Why do firms use cross-border strategic alliances? What risks are firms likely to experience as they use cooperative strategies? How can a firm m..
If the bank agrees to this loan request, what interest rate will attach to the loan if it is made today? How does this compare with the loan rate the bank.
If possible, please describe the advantages & disadvantages of using ILIT's in estate planning.
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