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Company A and Company B are identical except for capital structures. Company A has 70 percent debt and 30 percent equity financing, whereas Company B is all equity financed with 8,000,000 capital structure. The borrowing rate of debt for both companies is 5 percent and capital markets are assumed to be perfect.
a. Company A has net operating income of $400,000 and the overall capitalization rate of the company, ko is 16 percent. If you own 10 percent of the common stock of Company A, what is the implied equity capitalization rate, ke and your net dollar return?
b. If Company B goes for financing with $3700000 debt. Find the value of levered firm of company B with tax shield benefit of 35% and bankruptcy cost of $500000?
The firm’s marginal federal–plus-state tax rate is 40%. If the project’s cost of capital is 10%, should the spectrometer be purchased?
If the relevant tax rate is 40.0%, what is Year 4 net incremental cash flow?
Suppose the interest parity condition holds. Also assume that the one-year interest rate in the US is 5% and the one-year interest rate in Canada is G%.
Skim Milk and Part Whole Milk are identical firms except that Skim is more leveraged than Part Whole. The probability of a recession is equal to the probability of an expansion. If recession occurs, each Firm will have EBIT of $0.5 million next year...
Consider a firm that had been priced using a 9.5 percent growth rate and an 11.5 percent required return. The firm recently paid a $1.75 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 10.0 percent ..
Trust Bankers just paid an annual dividend of $1.5 per share. The expected dividend growth rate is 6.7 percent, the discount rate is 11 percent, and the dividends will last for 19 more years. What is the value of the stock?
Using the assumptions given in "c", what risk-premium do investors require for investing in each individual corporation?
what do these three figures imply about the firms operations and its cash flows?
Under which of the following circumstance the death benefit is not included in the insured’s gross estate?
How much consumer surplus do consumers get after the tax? What is the deadweight loss created by this tax?
What is the current price per share of the stock? How many shares of stock must be sold?
The indenture is a legal document which:
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