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Hastings Corporation is interested in acquiring Vandell Corporation. Vandell currently has a cost of equity of 10%; 25% of its financing is in the form of 6% debt, and the rest is in common equity. Its federal-plus-state tax rate is 38%. After the acquisition, Hastings expects Vandell to have the following FCFs and interest payments for the next three years (in millions):
Year1 Year 2 Year 3
FCF $10 $20 $25
Interest expense 28 24 20.28
After this, the free cash flows are expected to grow at a constant rate of 5%, and the capital structure will stabilize at 33% debt with an interest rate of 6.5%. What is the percentage cost of capital for the post-horizon period?
Dinklage Corp. has 5 million shares of common stock outstanding. The current share price is $77, and the book value per share is $8. The company also has two bond issues outstanding. Assume that the overall cost of debt is the weighted average of tha..
Lucky Inc. has a target capital structure of 53% common equity and 47% debt to fund its 5 billion in operating assets. Its WACC is 12%. Its before tax cost of debt is 9.89%. Its tax rate is 35%. What is the expected growth rate of the company? If the..
You are preparing a vacation to Europe in the future. You plan to save $400 a month beginning today, and estimate you earn 1% per month on your savings. Your goal is to save $5,000. How long it take to save this amount?
Lasting Impressions (LI) Company is a medium-sized commercial printer of promotional advertising brochures, booklets, and other direct-mail pieces. The firm’s major clients are ad agencies based in New York and Chicago. For each of the two proposed r..
Assume a $90,000 investment and the following cash flows for two alternatives. Year Investment A Investment B 1 $ 25,000 $ 40,000 2 30,000 40,000 3 25,000 28,000 4 19,000 — 5 25,000 — Calculate the payback for investment A and B.
Fleet Fleet rental car company purchased 10 new cars for a total cost fo $180,000. The cars generated income fo $150,000 per year and incurred operating expenses of $60,000 per year. The company uses MACRS depreciation and its marginal tax rate is 40..
A loan commitment of $4.32 million has an upfront fee of 80 basis points and a back end fee of 50 basis points. The take down on the loan is 60%. Calculate the total fees you will pay on this loan commitment.
Beta Industries has net income of $2,000,000, and it has 1,000,000 shares of common stock outstanding. The company's stock currently trades at $32 a share. Beta is considering a plan in which it will use available cash to repurchase 20% of its shares..
You plan to make a series of deposits into an interest-bearing account earning 11%. You will deposit $2,000 today, $3,000 two years from today, and $9,000 five years from today. If you withdraw $2,000 four years from today and $5,000 seven years from..
The Lion Corp.(LC) issues a 30 year callable bond which is also convertible to 50 shares of LC common stock. Explain why LC would issue a bond with these features as opposed to just issuing the bond without such options. As a bondholder, would you n..
A 6.65 percent coupon bond with fifteen years left to maturity is priced to offer a 8.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 8.0 percent. What is the change in price the bond will experience in dollar..
You have always wanted to own a restaurant and have now decided to go into business, purchase a building, and open an Italian Bistro. The items listed below provide information regarding the purchases you will need to make to start your business. The..
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