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The Phoenix Corporation has the following financial statistics:
· expected EBIT next year without new financing $10 million
· expected interest payment next year $ 1.0 million
· company tax rate 36%
· market price of common stock $10
· common shares outstanding 1 million
· You are CFO of this firm. You are considering borrowing an additional $5 million at an interest cost of 9% per year. You will use the funds to repurchase outstanding common stock at the current market price. Of course, this transaction would have no impact on your expected EBIT.
a) Calculate your times interest earned ratio both with and without the new debt financing.
b) Calculate the expected EPS next year, both with and without the new debt financing.
c) Would the M&M theorem identify this as a value-creating move? Why or why not?
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Finch Corp. sells portable air filtration systems by means of internet and direct mail orders. Most of the components are purchased from foreign suppliers at a cost of $1,600-What is Finch's DPGR per unit? It's QPAI? How could this result have been..
Giant produces consolidated financial statements to combine the two companies. Which of the following statements is correct about these consolidated statements?
It is sometimes said that in debt service funds, the accounting for interest revenue is inconsistent with that for interest expenditure. Explain. What is the rationale for this seeming inconsistency?
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