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Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 5.7% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) both companies are subject to a 31% federal-plus-state corporate tax, (3) EBIT is $1.6 million, and (4) the cost of equity to Company U is 13%. What is the value, in millions, of Company L under the MM model?
The staff of Jefferson Medical Services has estimated the following net cash flows for food services operation that it may open in its outpatient clinic. Furthermore, the salvage value cash flow at the end of year 5 could be as low as $0 or as high ..
The Lion Corp.(LC) issues a 30 year callable bond which is also convertible to 50 shares of LC common stock. Explain why LC would issue a bond with these features as opposed to just issuing a bond without such options. As a bondholder, would you nec..
Suppose you sell a fixed asset for $128,000 when it's book value is $161,000. If your company's marginal tax rate is 28%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
You find a certain stock that had returns of 13 percent, −12 percent, 25 percent, and 21 percent for four of the last five years. The average return of the stock over this period was 12.16 percent. What was the stock’s return for the missing year?
Identify the type of corporate restructuring that fits with common theories of what are assumed to be causes of mergers and acquisitions.
In the forecast formula for the operating expenses cash flow variable, the net revenue projection for the firm:
Compose a brief summary (3–5 paragraphs) on the relationship between risk and return. Identify the different types of risk and their potential effect on decision making.
Haskell Corp. is comparing two different capital structures. Plan I would result in 14,000 shares of stock and $100,000 in debt. Plan II would result in 10,800 shares of stock and $180,000 in debt. The interest rate on the debt is 8 percent. Ignoring..
A Treasury bond that matures in 10 years has a yield of 6%. A10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?
Bonds payable are dated January 1, 2014, and are issued on that date. The face value of the bonds is $150,000, and the face rate of interest is 14%. The bonds pay interest semiannually. Calculate the gain or loss on bond redemption. Round answer to t..
What is the value today of $3,300 per year, at a discount rate of 8 percent, if the first payment is received 7 years from today and the last payment is received 25 years from today? (Do not round intermediate calculations and round your final answer..
You want to create a portfolio equally as risky as the market, and you have $2,700,000 to invest. Given this information, fill in the rest of the following table:
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