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RAK, Inc., has no debt outstanding and a total market value of $220,000.Earnings before interest and taxes, EBIT, are projected to be $40,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 10 percent higher. If there is a recession, then EBIT will be 20 percent lower. RAK is considering a $135,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 11,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0.
Problem 1: Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
An issue of common stock that paid a dividend yesterday of $2.40. Calculate the value of one share of this stock
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Burns Industries currently manufactures and sells 30,000 power saws per month, although it has the capacity to produce 45,000 units per month. At the 30,000-unit-per-month level of production, the per-unit cost is $85, consisting of $50 in variable c..
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Any taxable gift made by decedent within three years prior to death is includible in the decedent’s gross estate. The alternate valuation date for gift tax purposes is six months after the date of the transfer. Jack died on July 2, 2016. At his death..
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