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Halifax Inc. is considering a project that requires an initial investment of $10 million and promises to generate an annual after-tax cash flow of $1 million perpetually. This firm is only financed by common shares and debt. In its capital structure it has 40% debt, and it wants to maintain this capital structure in future. It has bonds outstanding with a coupon rate of 8% (with semiannual coupon payment), and these bonds mature in 10 years. The bonds are currently selling at 93% of their par value. Current market risk premium is 6% and risk free rate is 4%. The firm has the same level of systematic risk as the market. The firm's tax rate is 32%. The firm does not have any internal capital for this project. Floatation cost for stocks and bonds are 4% and 2%, respectively, for this firm. Assume governmental tax authority allows firms to deduct floatation costs from taxes by amortizing over 5 years (on a straight line basis). That is, over 5 years the firm may get tax deduction on five equal amounts of the total floatation cost. As a policy the firm always use its weighted average cost of capital to discount its tax deductions for floatation costs. Given the information provided. Should the firm take the project? Complete your calculation and make your conclusion.
Your father is about to retire, and he wants to buy an annuity that will provide him with $85,000 of income a year for 25 years, with the first payment coming immediately. The discount rate on such annuities is 5.15%. How much would it cost him to..
Michelak's Maritime Industries has relatively stable earnings and pays an annual dividend of $2.50 each share. This dividend has remained constant over the past few years and is expected to remain steady for some time to come.
If a firm extends 3/10, net 45-day terms of sale. What is the cost in terms of nominal APR? Assume a 360-day year.
What is the expected rate of return for this stock? Show the formula you would use to determine this.
Assume that interest rate parity holds. In both the spot market and the 90-day forward market, 1 Japanese yen = 0.0086 dollar. And 90-day risk-free securities yield 4.6% in Japan. What is the yield on 90-day risk-free securities in the United Stat..
Assume that for a period of time, long-term corporate bonds had an average return of 7.1 percent with a standard deviation of 10.2 percent. What is the 95 percent probability range of returns?
Computation of effective annual return and rate of return also what is ratchets rotator's rate of return
why have you depreciated the 1 million required for machinery using SLN method instead of diminishing?
St Vincent's Hospital has a target capital structue of 35 percent debt and 65 percent equity. its cost of equity(fund capital) estimate is 13.5 percent and its cost of tac -exempt debt estimate is 7 percent. what is the hospital's corporate cost o..
If D = $1.50, g (which is constant) = 6.9%, and P = $56, what is the stock's expected capital gains yield for the coming year? 5.66 8.49 7.80 6.90 5.59.
The tax rate is 34 percent. What does the debt-equity ratio need to be for the firm to achieve its target WACC?
How much can you spend for each year after you retire? Your first withdrawal will be made at the end of your first retirement year.
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