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Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.4%. Assume that the risk-free rate of interest is 5% and the market risk premium is 4%. Both Vandell and Hastings face a 35% tax rate.
Vandell's free cash flow (FCF0) is $1 million per year and is expected to grow at a constant rate of 6% a year; its beta is 1.50. What is the value of Vandell's operations? (Hint: Use the corporate valuation model.) Round your answer to two decimal places. Do not round intermediate calculations.
$ million
If Vandell has $9.77 million in debt, what is the current value of Vandell's stock? (Hint: Use the corporate valuation model.) Round your answer to the nearest cent. Do not round intermediate calculations.
$ /share
Which of the following balance sheet accounts will be a affected by a stock dividend but not by a stock split?
You sell short 200 shares of Doggie Treats Inc. that are currently selling at $25 per share. You post the 50% margin required on the short sale. If your broker requires a 30% maintenance margin, at what stock price will you get a margin call?
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Which of the following is not a type of factor that drives stock prices, according to your text?
Stock Y has a beta of .98 and an expected return of 10.30 percent. Stock Z has a beta of .80 and an expected return of 9 percent. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?
You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earning..
analysis of the investmentin the shared activity for this unit you analyzed projected financial data and assessed its
The president and the board of directors have been talking about ways to use the unexpected profits from the sale of some land to the state for a right of way. One idea that was under consideration at the last meeting was to “call” (or pay off early)..
A call option on the stock of Bedrock Boulders has a market price of $6. The stock sells for $29 a share, and the option has a strike price of $25 a share. What is the exercise value of the call option?
Suppose your company needs to raise $44 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you’re evaluating two issue alternatives:
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