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Suppose that Lil John Industries’ equity is currently selling for $36 per share and that 2.9 million shares are outstanding. The firm also has 59,000 bonds outstanding, which are selling at 103 percent of par. Assume Lil John was considering an active change to its capital structure so that the firm would have a (D/E) of 1.4.
Which type of security (stocks or bonds) would it need to sell to accomplish this?
Sell bonds and buy back stock
Sell stock and buy back bonds
How much would the firm have to sell? (Enter your answer in dollars not in millions. Do not round intermediate calculations and round your final answer to 2 decimal places.)
Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 19 percent dividend payout ratio.
Although NPV is the best capital budgeting technique, most executives prefer to use
You need cash now for an unexpected expense, so you want to sell your bond. If the market rate today is 3%, how much can you get for your bond?
What is the rate of return to an investor in the fund during the year?
Prepare a two page summation using the process we presented in Module One for case study's taken from The Case Study Handbook by William Ellet.
Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt–equity ratio of .62. It’s considering building a new $71.7 million manufacturing facility. A new issue of common stock. If the tax r..
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Twice Shy Industries has a debt−equity ratio of 1.6. Its WACC is 8.6 percent, and its cost of debt is 6.1 percent. The corporate tax rate is 35 percent. What is the company’s cost of equity capital? What would the cost of equity be if the debt−equity..
Determine the security in each case that would most likely have thehigher price. In each case, clearly and fully explain your answers.
What will be the expected return for your portfolio?
Assume now that the salvage value estimate is $300,000, but all other facts remain the same. What is the new NAL? The new IRR?
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