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Your firm has $2,000,000 as perpetual EBIT. Currently the firm is all equity financed and there are 1,000,000 shares outstanding. The required rate of shareholders is currently 10 percent and the corporate tax rate is 30 percent. Suppose that the firm issues $2,000,000 of perpetual debt at an interest rate of 6 percent and uses the proceeds to buy back outstanding shares. The required rate of return of shareholders at this level of debt is 11 percent. Compute (i) the value of the firm, (ii) the price per share, and (iii) the number of shares outstanding after the capital structure change.
You have $90000 saved today and want to purchase a new yacht when your money grows to $300000. If you can earn 10 percent on your investments, how long do you have to wait to buy your yacht?
Calculate the equivalent annual costs for selling the new machine and for selling the old machine. Assume inflation is 0%.
If the investment plan pays you 10 percent per year for the first 12 years and 6 percent per year for the next 12 years, how much will you have at the end of the 24 years?
Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity cots and externalities should be included. Give an example of each.
Holdup Bank has an issue of preferred stock with a $6.15 stated dividend that just sold for $98 per share. What is the bank's cost of preferred stock?
Why is the national average property tax rate likely to affect the return to capital in investments other than real estate?
My company's stock is now selling for $40 a share. The stock is expected to pay $2 dividend at the end of the year. The stock's dividend is expected to increase at a constant rate of seven percent a year forever.
Dr. Steve just decided to save money each year for the next 4 years to help build a new office. It it earns 5.5 percent on its saving, how much will the Doctor have saved at the end of 4 years?
Construct an income statement, Construct a balance sheet, Construct a Statement of Retained Earnings, Construct Statement of Cash flows
Harris O'Splashagains is in the 28 percent tax bracket. He can purchase a taxable corporate bond that yields 10% or a municipal bond that yields 7.2%. Which bond is the better after-tax investment?
Calculate the degree of operating leverage for 10,500 and 12,000 based on a starting point of 9,500 used in part b.
It is expected that the lockbox system will reduce receipt and deposit times to three days total. Average daily collections are $132,000, and the required rate of return is 4 percent per year. Assume 365 days per year.
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