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A Corporation is about to sell a $100 million issue of bonds. The covenants on the loan need that firm maintain a coverage of its interest plus sinking fund of 2.5 to 1 (remember a sinking fund payment is the same as a principle payment). The bonds are to be retired over the next 20 years by equal yearly sinking -fund payments and carry on interest rate of 10% per year. What is the lowest level to which Company's EBIT can drop without violating the covenants of the loan? Company's tax rate is 40%.
Remember, interest is paid in before- tax dollars while sinking fund payments are made in after-tax dollars. Each dollar of interest payment requires just one dollar of EBIT to cover it, but to pay dollar in sinking-fund payment in after-tax dollars requires $1.67 of EBIT(before-tax dollars).
After paying 40% tax on $1.67, there will be $1.00 to cover the sinking fund. Thus to cover one dollar of interest plus one dollar of sinking fund would require $2.67 of EBIT ($1.00 for the interest plus $1.00 times 1.67 for the sinking fund payment); to cover one dollar of interest plus $0.50 of sinking fund payment would require $1.84 of EBIT.
Supposing that the stocks split will have no effect on the total market value of its equity, what will be the company's stock price following the stock split?
Risk as well as return analysis of a short term investment and Federal and state taxes will be paid on CD but only federal will be paid on Treasury bill
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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The Rivoli Corporation has no debt outstanding, and its financial position is given by the following information: The firm is planning selling bonds and simultaneously repurchasing some of its stock.
Provide some example of the role of economics in decision making. Please relate concepts to your personal experience and/or professional experience.
Memofax, Corporation produces memory enhancment kits for fax equipments. Sales have been very erratic with some months showing a profit and some months showing a loss.
Incremental Analysis Consider the production cost information for Santiago's Salsa in problem 1. The corporation is currently producing and selling 250,000 jars of salsa yearly.
Based on the bond ratings of JP Morgan Chase provide a brief debt outlook of company and a recommendation of buy, sell or neutral on the company's bonds.
How many in U.S. dollars did firm save by eradicating its foreign exchange currency risk with its forward market hedge?
Sims Corporation originally issued 2,000 shares of $10 par value common stock for $60,000. Sims subsequently purchases 200 shares of treasury stock for $27 per share and sells the 200 shares of treasury stock for $29 per share.
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