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Seattle Health Plans currently uses zero-debt financing. Its operating income (EBIT) is $1 million, and it pays taxes at a 40 percent rate. It has $5 million in assets and, because it is all-equity financed, $5 million in equity. Suppose the firm is considering replacing half of its equity financing with debt financing bearing an interest rate of 8 percent.
Assume that EBIT could be as low as $500,000 (with a probability of 20 percent) or as high as $1.5 million (with a probability of 20 percent). There remains a 60 percent chance that EBIT would be $1 million. Complete an analysis for each level of EBIT, and find the expected values for the firm’s net income, total dollar return to investors, and ROE. What lesson about capital structure and risk does this illustration provide?
Original:
$400,000 in tax
$600,000 net income
ROE=12%
The Sleeping Flower Co. has earnings of $2.30 per share. The benchmark PE for the company is 16. What stock price would you consider appropriate? (Round your answer to 2 decimal places. (e.g., 32.16)) Stock price $ What if the benchmark PE were 19? (..
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Suppose the dividends for the Seger Corporation over the past six years were $1.15, $1.23, $1.32, $1.40, $1.50, and $1.55, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method.
What systems would you propose that would serve the company's needs?
nbspyoyu are to submit a detailed plan covering your operations both nationally and internationally in addition to the
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In addition to comparison with industry ratios, it is also helpful to analyze ratios using
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Assuming no corporate taxes, the independence hypothesis suggests that a firm's weighted average cost of capital will. The EBIT-EPS indifference point
ware that ACT is too small to obtain a bond rating, but in 2010 the Federal budget announced plans for a new scheme that will enable small bond issues (at least $50 million) to be listed on the ASX.
Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting?
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