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Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in equity. Both firms sell 10,000 units of output at $2.50 per unit. The variable costs of production are $1, and fixed production costs are $12,000. (To ease the calculation, assume no income tax.)a.What is the operating income (EBIT) for both firms?b.What are the earnings after interest?c.If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers you derived in part b.d.Why are the percentage changes different?
Snail company wants to purchase Bug corporation. The financial manager of Snail company forecasted the following free cash flows for Bug corporation for year 1-6.
Calculation of portfolio return and variance and standard deviation Use the Solver function in Excel to suggest different combinations of equity that will either provide the same return for less risk
Which of the following will result from a stock repurchase? a. Earnings per share will rise. b. Number of shares will increase. c. Corporate cash is conserved. d. Ownership is diluted
The Joseph Company has a stock issue that pays a fixed dividend of $ 3.00 per share annually. Investors believe the nominal risk- free rate is 4 percent and that this stock should have a risk premium of 6 percent. What should be the value of this ..
what is the maximum capital budget that can be adopted without adversely affecting stockholder wealth?
Over the next two years, the real interest rate is expected to be 1.00 percent per year and the inflation premium is expected to be 0.30 percent per year. Calculate the maturity risk premium on the 2-year Treasury security.
how much interest will the borrower pay over the life of the mortgage?
The project requires an initial investment in net working capital of $400,000, and the fixed asset will have a market value of $260,000 at the end of the project. If the tax rate is 30 percent, what is the project's year 0 net cash flow? Year 1? Y..
question 2. 15 points an investment company recently issued convertible bonds with a 1000 par value. the bonds have a
blueberry corp used to be a leading smartphones maker it is not the leader anymore. in recent years is has seen it
One year ago, you purchased a 5-year, $1,000 face value, 6 percent coupon bond for $1,012. Interest is paid semi-annually. Today, you sold the bond at a market rate of return of 6.27 percent. What is your total return in dollars on this investment..
A company paid dividend of $2.00 per share,and investors believe that the dividend will increase at a constant rate into the foreseeable future.The price of stock is currently $65.00 per share.
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