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1. Consider two firms, CompanyB and CompanyC, both with earnings of $10 per share and 5 million shares outstanding. CompanyC is a mature company with few growth opportunities and a stock price of $25 per share. CompanyB is a new firm with much higher growth opportunities and a stock price of $40 per share. Assume CompanyB acquires CompanyC using its own stock and the takeover adds no value. In a perfect capital market, how many shares must Bob offer CompanyC's shareholders in exchange for their shares?
A) 0.625 B) 1 C) 0.3846 D) 1.6
2. A stock increased from $50 to $57. If the risk premium of the stock is 10%, what is the rate of inflation if the real risk-free rate is 1.5%?
A. 1.2% B. 1.9% C. 2.5% D. 2.9% E. 3.4%
Compute the yield to maturity on the old issue and use this as the yield for the new issue. Make appropriate tax adjustment to determine aftertax cost of debt.
The personal tax rate on debt is 21% and the personal tax on equity is 10%. What is the new value of the remaining equity in the firm?
If gold is selling at $1,200 and a futures contract maturing in one year is trading for $1,250, which of the following is a successful arbitrage opportunity?
Thomas Brothers is expected to pay a $3.1 per share dividend at the end of the year (that is, D1 = $3.1). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 19%. What is the stock's curr..
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Which of the following statements is most consistent with MM Proposition I?
what is continuation value in year 4 for cash flows after year 4? Calculate NPV of this project and what is the divisions decision on this project?
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $495,000 is estimated to result in $194,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Ta..
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A man has a simple discount note for? - $6000 at an ordinary bank discount rate of 8.53 % for 60 days. - What is the effective interest? rate?
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