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(Leverage and EPS) You have developed the following proforma income statement for your corporation: Sales $45832000 Variable costs (22756000) Revenue before fixed costs $23076000 Fixed costs (9105000) EBIT $13971000 Interest expense (1317000) Earnings before taxes $12654000 Taxes (50%) (6327000) Net income $6327000 It represents the most recent year’s operations, which ended yesterday. Your supervisor in the controller’s office has just handed you a memorandum asking for written responses to the following questions:
a. If sales should increase by 30 percent, y what percent would earnings before interest and taxes and net income increase?
b. If sales should decrease by 30 percent, by what percent would earnings before interest and taxes and net income decrease?
c. If the firm were to reduce its reliance on debt financing such that interest expense were cut in half, how would this affect your answers to part a and b?
Proposing a new venture to the management of your company
1. consider the following information about the characteristics of two securities a and b the market portfolio m and
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xyz has no debt financing and has a value of 45 million and ebit of 14.5 million. the firm is planning to change its
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General Matter’s outstanding bond issue has a coupon rate of 10.8%, and it sells at a yield to maturity of 8.75%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at fac..
The New York Stock Exchange is an example of a stock exchange that has a physical location. e) A larger bid-ask spread means that the dealer will realize a lower profit. f) The efficient market hypothesis assumes that all inventories are rational.
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