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Financial leverage effects The Neal Company wants to estimate next year's return on equity (ROE) under different leverage ratios. Neal's total capital is $17 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $5.7 million with a 0.2 probability, $1.7 million with a 0.5 probability, and $500,000 with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations. Debt/Capital ratio is 0. RÔE = % ? = % CV = Debt/Capital ratio is 10%, interest rate is 9%. RÔE = % ? = % CV = Debt/Capital ratio is 50%, interest rate is 11%. RÔE = % ? = % CV = Debt/Capital ratio is 60%, interest rate is 14%. RÔE = % ? = % CV =
A few well publicized investors have consistently earned higher than normal returns in the market over the last decade (for example, Warren Buffett). What does this imply about the EMH? How would you explain their success?
What are the equity value and debt-to-value ratio if the company's growth rate is 3.5 percent?
The face value of this bond is $100. You plan to purchase this bond right after the next coupon payment (on August 1, 2017) without any accrued interest.
A loan of 100,000 has payments at the end of each month for 12 years. For the first 6 years the payments are Z each month, and for the final 6 years the payments are 2Z each month. Interest is at a nominal annual rate of 12% compounded monthly. Find ..
Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called.
Explain how the following risks may affect these 3 sources of financing in international capital markets. In addition, explain how these risks may influence a company's international weighted average cost of capital (WACC):
Trust Bankers just paid an annual dividend of $1.8 per share. The expected dividend growth rate is 6.2 percent, the discount rate is 11 percent, and the dividends will last for 4 more years. What is the value of the stock?
Is the FDIC required to "protect" something else other than just the "safety and soundness" of the banking system?
Your co-worker tells you that he has beaten the market for each of the last three years. Suppose you believe him. Does this weaken your belief in the efficient market hypothesis? Why?
A couple will retire in 50 years; they plan to spend about $30,000 (real dollars) a year in retirement, which should last about 25 years. They believe that they can earn 8% nominal interest on retirement savings, and the couple realizes that the annu..
What’s the best way to solve the student debt crisis?
If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). What is the HPY on your investment?
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