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A firm currently has no debt. The firm has 10 million shares outstanding and those shares currently have a market price of $30 per share. The firm is contemplating selling $50 million in bonds and using the proceeds to repurchase shares of stock. If they undertake this action, the firm intends to keep this level of debt financing for the foreseeable future. Assume that there are no taxes. Given this data, if the firm announces that they will sell the bonds and repurchase equity what: (a) do you expect the stock price to be immediately after the announcement? (b) will be the firm’s total market value of equity immediately after the announcement? (c) do you expect the stock price to be after the bond issue/repurchase are completed? (d) will be the firm’s total market value of equity after the bond issue/repurchase are completed?
Thornley Machines is considering a 3-year project with an initial cost of $1,050,000. The project will not directly produce any sales but will reduce operating costs by $600,000 a year. The equipment is depreciated straight-line to a zero book value ..
A relatively small medical group practice is trying to estimate its corporate cost of capital. What is best estimate of the firm's corporate cost of capital?
Explain which of two options below results in lower balance after 6 months on investment of $6,000. Discuss why the two methods result in different results.
Stock J has a beta of 1.29 and an expected return of 13.61 percent, while Stock K has a beta of .84 and an expected return of 10.55 percent. You want a portfolio with the same risk as the market. What is the portfolio weight of each stock?
An investment to modernize a distribution center is being considered. Specified automated storage and retrieval equipment has been proposed for the storage of pallet loads of product. The building has a projected life of 30 years, and the storage/ret..
You have just won lottery of 11,000,000.your winnings will be paid to you in 26 equal installments with the first payment made immediately . if you had the money now you could invest it in an account with a quoted annual interest rate of 9% with mont..
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years, because the firm needs to plow back its earnings to fuel growth. The company will pay a dividend of $15 per share in 10 years and ..
All short-term debt is considered temporary financing. A capital lease incurs tax deductible interest expense. An operating lease is not tax deductible.
?Andrews Corporation has a capital budget of $4,000,000. The company's target capital structure is 40% debt and 60% equity. Its forecasted net income is $3,000,000. If the company follows a residual dividend policy what total dividends, if any, will ..
Simtek currently pays a $2.50 dividend (D 0 ) per share. Next year’s dividend is expected to be $3 per share. After next year, dividends are expected to increase at a 9 percent annual rate for 3 years and a 6 percent annual rate thereafter. What is t..
What challenges do nonprofits face when managing money?
What is the companys sustaniable growth rate?
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