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Abe Forrester and three of his friends from college have interested a group of venture capitalist in backing their business idea. The proposed operation would consist of series of retail outlets to distribute and service a full line of vacuum cleaners and accessories. These stores would be locate Dallas Houston and San Antonio To finance the new venture two plans have been proposed
Plan A is an all-common-equity structure in which 2.5 million dollars would be raised by selling 82,000 common stock Plan B would involve issuing 1.3 Million dollars in long term bonds with an a effective interest rate of 11.8% plus $1.2 million would be raised by selling 41,000 share of common stock. The debt funds raised under plan B have no fixed maturity date, in that this amount of finance leverage is considered a permanent part of the firms capital structure ABE and his partners plan to use 40% tax rate in their analysis and they have hired you on a consulting basis to do the following
A. Find the EBIT indifference level associated with the two financing plans.
B. Prepare a pro forma income statement for the EBIT level solved for in Part a. that shows that EPS will be the same regardless whether Plan A or Plan B is chosen
A corporation produces three products. Information concerning the selling prices and unit costs of the three products appear below:
Based on historical data, you determine that your summer classes for the next seven years will generate an average annual revenue of $93,850. If you discount these cash flows at an annual rate of 8.30%, what is the present value of the expected ca..
What is the yield to maturity on the bond?
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cassady an employee of a law firm maintains an office at the principal business location of her firm. she frequently
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you are at retirement age and one of your benefit options is to accept an annual annuity of 7500 for 15 years. what
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Given that Good Health Clinic is a not-for-profit organization with 100% equity, what is the cash flow margin?
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