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The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $16 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $4.7 million with a 0.2 probability, $1.8 million with a 0.5 probability, and $0.6 million with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations. Debt/Capital ratio is 0. RÔE = % σ = % CV = Debt/Capital ratio is 10%, interest rate is 9%. RÔE = % σ = % CV = Debt/Capital ratio is 50%, interest rate is 11%. RÔE = % σ = % CV = Debt/Capital ratio is 60%, interest rate is 14%. RÔE = % σ = % CV =
Zebra company sells $73 million of its products to retailers on creidt terms of net 30. Its average collection period is 55 days. To speed up the collection of receivables the company is considering giving 1.5% cash discounts if customers pay with in..
In what types of situations would capital budgeting decisions be made solely on the basis of project's net present value (NPV)? Identify potential reasons that might drive higher NPV for a given project. Substantiate your response by providing an exa..
What is the future value of this cash flow? What is the present value of this cash flow?
A corporation has total assets of $85 million and total liabilities of $5 million. If the corporation has 4 million shares of common stock outstanding, what is the book value per share of common stock?
You need a 25- year, fixed rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 7.5 percent APR for this 300-month loan, with interest compounded monthly. However you can only afford monthly payments of $850, ..
You are considering an investment project with the cash flows of -500 (the initial cash flow), 700 (cash flow at year 1), -100 (cash flow at year 2). Given the discount rate of 10%, compute the Modified Internal Rate of Return (MIRR) using the reinve..
Targeting investment toward longer term (nonliquid) assets and using shorter term financing results in
What is the present value of a security that will pay $19,000 in 20 years if securities of equal risk pay 12% annually? Round your answer to the nearest cent.
Which ratios would a banker be most interested in when considering whether to approve an application for a short-term business loan? Explain.
Murray Motor Company wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $2.50 per share, and the current price of its common stock is $50 per share. The expected growth rate is 8 p..
Assume the loans will be held to maturity, what is the incremental cost of borrowing the extra money.
Now that you have compared the costs of buying and leasing a home, the result indicates that buying is the better options.
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