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“Futons for Crutons” is a furniture company that focuses on providing affordable furniture for the elderly. It is at its target debt ratio of 50% and can borrow in today’s market at 6%. It currently estimates that if all equity financed its cost of equity would be 10 %. If one assumes that the company will earn in perpetuity pre-tax free cash flows of $200,000 per year and the company is taxed at 36% what is the company worth? Suppose as part of a Social Security reform plan the government allows companies that serve the elderly to borrow up to $200,000 at a government subsidized rate of 3% for 5 years. What effect would this program have on Futons for Crutons market value assuming that it continues to maintain a 50% debt to asset ratio (so it simply substitutes government borrowing for some of its debt)?
Fei has 11,600 dollars in his retirement account. In addition, he plans to save 8,100 dollars per year in his account for 8 years. His first contribution to his account is expected immediately and his last contribution is expected in 7 years. Fei exp..
Identify the Congressional Act that repealed the restriction on banks affiliating with securities firms and explain the implications of the Act.
A unit that consists of individuals or groups occupying recognizable places of business, residence, government, or assembly is termed a(an)
ABC Company sells 4,643 chairs a year at an average price per chair of $147. The carrying cost per unit is $16.67. The company orders 500 chairs at a time and has a fixed order cost of $47 per order. The chairs are sold out before they are restocked...
An increase in share price following an increase in dividends is logical if the:
Consider a single factor APT. Portfolio A has a beta of 1.0 and an expected return of 16%. Portfolio B has a beta of 0.8 and an expected return of 12%. The risk-free rate of return is 6%. If you wanted to take advantage of an arbitrage opportunity, y..
First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually. If you made a deposit of $8,500 in each bank, how much more money would you earn from your Second Ci..
First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually. If you made a deposit of $9,000 in each bank, how much more money would you earn from your Second Ci..
FarCry Industries, a maker of telecommunications equipment, has 5 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 20,000 bonds. What would be the weight used for equity in the computation of FarCry’s W..
DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, ..
Doug Smith is a superintendent of a large construction firm. He currently is overseeing the construction of three new businesses,
What are the deltas of a call option and a put option with the following characteristics?
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