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Debt and firm value
This one is a little harder. Acacia Company Ltd expects an EBIT of $12 000 every year forever. Acacia currently has no debt and its cost of equity is 16 per cent. Acacia can borrow at 10 per cent. If the company tax rate is 30 per cent, what is the value of the firm? What will the value be if Acacia converts to 100 per cent debt?
Why do adjustable rate mortgages (ARMs) seem to be a more suitable alternative for mortgage lending than PLAMs?
You are able reinvest these cash flows at 10.32 percent, compounded annually. How much is this investment worth at the end of year four?
In addition, you expect to sell the stock for $150 at the end of Year 2. If your expected rate of return is 16 percent, how much should you be willing to pay for this stock today?
If she pays off the loan in 36 months, what are her monthly payments? If she makes a down payment of $220, how much will her monthly payments be? Do not round until the final answer. Then, round to the nearest cent.
Lear, Inc., has $800,000 in current assets, $350,000 of which are considered permanent current assets. In addition, the firm has $600,000 invested.
Suppose that a $2 per arrow is levied on the sale of arrows. What is the efficiency loss ratio of the tax? What is the excess burden (DWL) of the tax
You will be paying $10,500 a year in tuition expenses at the end of the next two years. Bonds currently yield 8%.
Hint: Use the perpetuity formula. Remember the rate of discount and rate of return are one and the same thing.
Compute average arithmetic, average geometric, and standard deviation based on nominal returns. Compute average arithmetic, average geometric, and standard deviation based on real (inflation adjusted) returns.
Define primary research and discuss the advantages and disadvantages of the different types of primary research.
What is the project's simple payback? The corporate WACC is 11%.
Consider a manager using IRR and NPV methods in evaluating prjects. Can these methods ever conflict with each other in the following sense:
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