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Herculio Mining has net operating income of $5 million; there is $50 million of debt outstanding, with a required rate of return of 6 percent; the required rate of return on the industry is 12 percent; and the corporate tax rate is 40 percent. Assume there are corporate taxes but no personal taxes.
a. Determine the present value of the interest tax shield of Herculio Mining, as well as the total value of the firm.
b. Determine the gain from leverage if personal taxes of 20 percent on stock income and 30 percent on debt income exist.
MF Corp. has an ROE of 12% and a plowback ratio of 50%. If the coming year's earnings are expected to be $4 per share, at what price will the stock sell? The market capitalization rate is 14%. What price do you expect MF shares to sell for in three y..
Medco Corporation can sell preferred stock for $90 with an estimated flotation cost of $2. It is anticipated the preferred stock will pay $8 per share in dividends. compute the cost of preferred stock for Medco Corp. Do we need to make a tax adjustme..
Craig purchased 150 shares of Box, Inc. (BOX) when it went public for $14 per share. He wants to sell his shares today, 50-days later, for $18.20 and it paid a $2.13 dividend. What is his annualized return?
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Objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions
Determine what the projects ROE will be if its EBIT is -$60,000. When calculating the tax effects, assume that Sombra Corp. as a whole will have a large, positive income this year? please show work
Use two-state option pricing model to find the value of a call option and the intrinsic value given the following parameters:
The Gentry Garden Center sells 90,000 bags of lawn fertilizer annually. The optimal safety stock (which is on hand initially) is 1,000 bags. Each bag costs the firm $1.50, inventory carrying costs are 20%, and the cost of placing an order with its su..
A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent. The ratio of total assets to sales is constant at 1, and the profit margin is 10 percent. What must the debt-equity ratio be if the firm wishes to keep th..
Joyce Rich wants to buy a new line of stereos for her shop. Manufacturer A offers a 19/14 chain discount. Manufacturer B offers a 24/8 chain discount. What is the net price equivalent rate for the best deal?
Panda AB manufactures and sells ecological cotton fleece and is expected to have a free cash flow of 10 million SEK during next year. This cash flow is expected to grow by 4% from next year and onwards. What is the WACC before tax for Panda? What wou..
Consider a bond with a coupon rate of 8 percent that pays semi-annual interest and matures in 8 years. The market rate of return on bonds of this risk is currently 11 percent. What is the current value of a $1,000 face value bond?
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