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Amarillo Parts is considering purchasing a small firm in the same line of business. The purchase would be financed by either the sale of common stock or by a bond issue. The financial manager wants to evaluate how the two alternative financing plans will affect the earnings potential of the firm. Total financing required is $4.5 million. The firm currently has $20,000,000 of 12 percent bonds and 600,000 common shares outstanding. The firm can arrange financing of the $4.5 million through a 14 percent bond issue or the sale of 100,000 shares of common stock. The firm has a 40 percent tax rate.
A) What is the financial breakeven point for each plan?
Suppose an agribusiness in Texas exports its crops. It expects an 18 million peso invoice for an export to Mexico to be paid in 90 days. The current spot and 90-day forward rates are $0.7502/Peso and $0.7422/Peso respectively.
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Romo, Inc. has current assets of $1,850, net fixed assets of $8,600, current liabilities of $1,600, and long-term debt of $6,100. Calculate the value of the shareholders' equity for this firm. Calculate the amount of net working capital.
A disadvantage that the corporate form of business has over either the sole proprietorship or partnership is the:
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All else constant, the weighted average cost of capital for a risky, levered firm will decrease if:
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