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Southern Alliance Company needs to raise $25 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 50 percent common stock, 8 percent preferred stock, and 42 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 6 percent, and for new debt, 6 percent. What is the true initial cost figure Southern should use when evaluating its project.
A firm is considering a project that has the following estimated cashflows:
DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.17 million to finance plant expansion. In discussions with its investment bank,
Maloney, Inc, has an odd policy. If you require a return of 11 percent on the company's stock, how much will you pay for a share today?
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Prepare a spreadsheet to show a repayment schedule for a loan of $100,000,
What is the Payback Period for this project? What is the NPV for the project if the required return is 9%?
What is the equivalent annual savings from the purchase if Gluon uses straight-line depreciation? Assume the new machine will have no salvage value.
A convertible bond gives the bondholder the right to exchange their bonds for a preset number of shares of stock. A warrant is a security that is often sold with bonds but that can be detached (bought and sold separately) from the bond. Arrearages ar..
When are “lost profits” (aka “benefit of the bargain damages) appropriate?
Consider two perfectly negatively correlated risky securities, A and B. Security A has an expected rate of return of 16% and a standard deviation of return of 20%. B has an expected rate of return of 10% and a standard deviation of return of 30%. The..
School spent $100,000 on textbooks for the fall 2016 semester. It had expected to have a total enrollment of 450 students who would each have needed four books at a cost of $65 each. What is the textbook expense variance? IS it favorable or unfavorab..
Which of the following actions will have the result of increasing financial leverage in the firm? In each case, assume that all other activity in the firm does not change. a. A 2 for 1 stock split b. A new debt issue c. An increase in the firm’s reta..
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