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Qusetion: The risk free rate is 5%. Aquarius Corporation, Arizona-based manufac- turer of healing power crystals, has existing assets generating certain cash flows of $231 million next year. A new exciting investment opportunity has surfaced, the rights to the book. Find Your Seventh Chakra. The project would cost Aquarius $100 million and generates a single certain cash flow of $136.5 million next year. Aquarius has no cash on hand, and is considering financing the in- vestment by issuing new shares. Aquarius CURRENTLY has 2 million shares outstanding.
a) How big of an equity stake must be given to the NEW share- holders in order to raise the required $100 million? (Note: Find a MINIMUM percentage required so that new shareholders just get fair return on capital).
b) What is the value of the equity stake held by CURRENT shareholders after the deal? How much do current shareholders benefi?t from the deal?
c) How many new shares must be issued, and at what price will they be sold?
What is the value of this firm if the weighted average cost of capital is 10%?
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A firm has a capital structure which consists of 30% debt and 70% equity. The before-tax cost of debt is 10% and the cost of equity is 15%. Find the weighted average cost of capital (WACC) if the firm's tax rate is 34%.
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The Corporation forecasts that its sales will increase by 10% in the next year and its operating costs will rise in proportion to sales. The corporation interest expense is expected to remain at $200 million,
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All of general's hospital's dept is at an interest rate of 7.5% on its dept. It is the 35% tax bracket. 30% of its funding is dept. 70% of its funding is equity, which costs 12%. What is the average cost of capital for the organization?
You own $21,500 of City Steel stock that has a beta of 3.32. You also own $38,500 of Rent-N-Co (beta = 1.77) and $20,700 of Lincoln Corporation (beta = -.83). What is the beta of your portfolio?
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