Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Except for their capital structure, Banana Company and Pear Company are identical firms in all respect. Banana is wholly equity financed with $740,000 in stock. Pear uses both stock and perpetual debt; its stock is worth $370,000 and its debt is worth $370,000. The interest rate on its debt is 6.8 percent. Both firms expect earnings before interest and tax (EBIT) to be $102,000. Ignore taxes.
(i) Calculate the cost of equity for Banana and for Pear respectively.
(ii) Estimate the weighted average cost of capital (WACC) for Banana and for Pear. What capital structure principle does the results indicate?
(iii) Suppose Samuel owns $45,000 worth of Pear's stock. Calculate his expected rate of return.
(iv) Explain how Samuel could generate exactly the same cash flows and rate of return by investing in Banana and using homemade leverage.
1. Define the process of accounting. 2. What are the three major divisions in the accounting field?
Amanda, aged 28, has recently received an inheritance amounting to $200,000. She currently rents a unit in Lilyfield, paying $500 per week.
Investors require? a(n) 6.4% annual return on these bonds. What should be the selling price of the? bond?
Write a payment schedule calculator subroutine. The subroutine is to ask the user for the sum of the loan, the payment, and the interest rate.
Create a unique hypothetical weighted average cost of capital (WACC) and rate of return. Recommend whether or not the company should expand, and defend your position.
What effect would a change in the debt to equity ratio have on the weighted average cost of capital and the cost of equity capital of the firm?
Briefly describe one of the below three theories of the term structure of interest rates. Expectations hypothesis, Liquidity preference theory.
It has a leveraged beta of 0.8 and is subject to a 0.5 corporate tax rate. What is IBM's unleveraged beta?
What is the advantage and disadvantage of using short-dated (1 month) options versus longer-dated (3 month) options to hedge your position?
Find the NPV if the firm uses a 10% opportunity cost of capital. What is the IRR? What is the payback period?
To maximize firm value, which of the joint products should be processed further and which should be sold without further processing?
if roten inc has an equity multiplier of 1.35 total asset turnover of 2.15 and a profit margin of 5.8 what is the
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd