Explain how you would move to the optimal

Assignment Help Finance Basics
Reference no: EM131690222

Question: Pfizer, a major pharmaceutical company, has a debt ratio of 10.30% and is considering increasing its debt ratio to 30%. Its cost of capital is expected to drop from 14.51% to 13.45%. Pfizer had earnings before interest and taxes of $ 2 billion in 1995, and a book value of capital (debt + equity) of approximately $ 8 billion. It also faced a tax rate of 40% on its income. The stock in the firm is widely held, but the corporate charter includes significant anti-takeover restrictions.

a. Should Pfizer move to its desired debt ratio quickly or gradually? Explain.

b. Given the choice in part a, explain how you would move to the optimal?

c. Pfizer is consider using the excess debt capacity for an acquisition. What are some of the concerns it should have?

Reference no: EM131690222

Questions Cloud

Regress changes in firm value against interest rates : You are trying to decide whether the debt structure that Bethlehem Steel has currently is appropriate, given its assets.
Demand for one of her best-selling products : The owner of Leisure Boutique in a local mall wants to forecast November demand for one of her best-selling products based on the following historical data:
Definitions of operations management : Write 2 pages about OM. Define, give examples and definitions of operations management?
Develop a lesson plan that to teach this story element : Provides an in-depth look at the elements that help make up a good children's book.Develop a lesson plan that to teach this story element.
Explain how you would move to the optimal : Pfizer, a major pharmaceutical company, has a debt ratio of 10.30% and is considering increasing its debt ratio to 30%.
Explain relationship between motivation and work performance : Write a four-page paper (excluding the title and reference pages) evaluating the relationship between motivation, job satisfaction, and work performance.
Organization should implement diversity program : Prepare an essay that describes why an organization should implement a diversity program.
Estimate the duration of the firm projects : You are attempting to structure a debt issue for Eaton Corporation, a manufacturer of automotive components. You have collected the following information.
Assertion of the dignity and worth of culture : How can Gideon's ultimate decision not to share his knowledge be interpreted as an act of rebellion and an assertion of the dignity and worth of his culture?

Reviews

Write a Review

Finance Basics Questions & Answers

  The stock has just paid a dividend of 150 per share angeln

you are trying to decide whether a share of stock in angeln inc. is a good buy at 27.50 a share the most recent closing

  Dividends and taxes

Finance problems, based  Abnormal Returns,    Underpricing - construct a simple example to show the following:  Dividends and Taxes-,  Dividend Policy

  Define par value and coupon rate and coupon payment

What are call provisions and convertible provisions, and how do they affect the interest rates on newly issued securities?

  What is project foxtro npv

Assuming that the cost of capital is 8%, what is Project Foxtrot's NPV? And, should the project be accepted if we used NPV as the basis of decision?

  Determine costs that change in direct proportion

A method of attributing expenses to products based on assigning costs of resources to activities and assigning costs of activities to products is known as Unit Based Costing.

  What is the required return for jjm

Jersey Jewel Mining has a beta coefficient of 1.2. Currently the risk-free rate is 5 percent and the anticipated return on the market is 11 percent. JJM pays a $4.50 dividend that is growing at 6 percent annually.

  Calculation of operating income and ebit

Calculation of operating income, EBIT and dividend per share - What was the firm's operating income, or EBIT and What dividend per share should the company declare

  Identify key reasons that organisations may need to hold

identify key reasons that organisations may need to hold inventories. what factors may lead an organisation to change

  Question regarding the uniform probability

Consider a spinner that, after a spin, will point to a number between zero and 1 with "uniform probability". Determine the probability: P(1⁄6 ≤ X ≤ 19⁄42).

  What is the investment opportunity curve and how is it

what is the investment opportunity curve and how is it

  State of pennsylvania sits on a shale formation

Approximately 70% of the state of Pennsylvania sits on a shale formation from which natural gas may be extracted. If a geological test is positive, it has an 80% accuracy rate in correctly identifying a productive drilling site (shale is under the..

  What is the depreciation tax shield

Assume a tax rate of 30% and a discount rate of 13%. What is the depreciation tax shield for this project in year 5?

Free Assignment Quote

Assured A++ Grade

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!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd