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Assume that Western Exploration Corp. is considering the acquisition of Ogden Drilling Company. The latter has a $430,000 tax loss carryforward. Projected earnings for the Western Exploration Corp. are as follows: 2011 2012 2013 Total Values Before-tax income $ 175,000 $ 230,000 $ 350,000 $ 755,000 Taxes (35%) 61,250 80,500 122,500 264,250 Income available to stockholders $ 113,750 $ 149,500 $ 227,500 $ 490,750
a. How much will the total taxes of Western Exploration Corp. be reduced as a result of the tax loss carryforward? (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
b. How much will the total income available to stockholders be for the three years if the acquisition occurs?
Gamer Co. has no debt. Its cost of capital is 10.4 percent. Suppose the company converts to a debt–equity ratio of 1. The interest rate on the debt is 7.5 percent. Ignore taxes for this problem. What is the company’s new cost of equity? What is WACC?
Given the following information for Electric Transport, find the WACC. Assume the company's tax rate is 34 percent. Debt: 7,500, 8.4 percent coupon bonds outstanding. $1,000 par value, 22 years to maturity, selling for 103 percent of par, the bonds m..
What impact does asymmetric have on the optimal level of leverage? In your answer be sure to describe the implications of adverse selection and the lemons principle for equity issuance, as well as the empirical implications.
(E-commerce) Use the Online Consumer Purchasing Model, Figure 6.11 in Chapter 6, to assess the effectiveness of an e-mail campaign at a small website devoted to the sales of apparel to the young adult market (ages 18–26) in the United States. Does th..
Karon owns a home worth $245,000. Howard Mortgage is offering a reverse mortgage with a 15-year term, a maximum loan balance equal to 60 percent of the home’s current value and a 7.25 percent interest rate. If Karon takes out no money at origination,..
On January 1, 2016, the Blue Devil Corporation issued $20,000,000 of ten-year bonds. The bonds carried a stated interest rate of 5 percent, with interest payable semiannually on June 30 and December 31. Using the Excel PV function, determine the proc..
Using a stock of your choice calculate the return for it using the Capital asset pricing model. Assume an annualized return for the market at 6.86% and a risk free rare of 3.45%. Analyze and elaborate on your results against the last three years aver..
Wesley’s ending finished goods inventory policy is 35 percent of the next month’s sales. Suppose each handisaw takes approximately .25 hours to manufacture, and Wesley pays an average labor wage of $12.50 per hour. Each handisaw requires a plastic ho..
A used car can be kept for two more years and then sold for an estimated $3000, or it could be sold now for $9500. The average annual maintenance cost over the past 7 years has been $500 per year. The new car will be under warranty for the first 4 ye..
Determine the WACC for a given firm using what you know about WACC as well as data you can find through research.
Do you feel that the financial markets play any role in financing, instigating or creating wars among nations in the modern world? If yes, give some examples. How do the concepts of credit and interest, as incorporated into banking and money lending,..
Your company must make a $750,000 balloon payment on a lease 2 years and 9 months from today. You have been directed to deposit an amount of money quarterly, beginning today, to provide for the $750,000 payment. The account pays 8% per year, compound..
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