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1. Suppose a firm has an EBIT of 1,400,000 and finances its assets with 6,000,000 of debt at 6 percent interest and 300,000 shares of stock selling at 12.50 a share. To lessen the risk associated with this financial leverage, the firm is thinking about reducing its debt by 3,000,000 by selling more stock. The firm is in the 35 percent tax bracket. The change in capital structure won't have any effect on the firms operations, thus EBIT will remain at 1,400,000. What's the change in the firms EPS from this change in capital structure? A. EPS rises by 0.54 per share B. EPS rises by 0.28 per share C. EPS falls by 0.48 per share D. EPS falls by 0.36 per share
2. One-year Treasury bills currently yield 2.43 percent. You expect that one year from now, one-year Treasury bill rates will increase to 2.83 percent, and two years from now, one-year treasury bill rates will increase to 3.04 percent. The liquidity premium on two-year securities is 0.08 percent and on three year securities, 0.14 percent. If the liquidity premium theory is correct, what should the current rate be on three-year Treasury securities? A. 1.94 percent B. 2.84 percent C. 3.26 percent D. 2.68 percent.
Tom and Sue’s Flowers, Inc.’s, 15-year bonds are currently yielding a return of 9.05 percent. The expected inflation premium is 3.05 percent annually and the real risk-free rate is expected to be 3.20 percent annually over the next 15 years. Calculat..
Accounting statements can be manipulated. Please try to give an argument pro and con on this ethical issue.
Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, RT is expected to experience a 20% annual growth rate for the next 5 years. By the e..
Issuing new common stock to raise investment funds is more expensive than using retained earnings as the funding source
The ________ is the period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service. The ________ starts at the time production begins and ends with the c..
You are considering opening a bagel restaurant aimed primarily at the breakfast trade. What is the break-even quantity of bagels?
A bank has provided you with a loan valued at a cost of K1,000 and you agree to repay the balance in 3 equal instalments that include principal paid at the end of each period with 10% intrest componded annually. Find the repayment to be made each tim..
Explain how a credit crisis can lead to a full-blown economic crisis. Explain the similarities between the 1929 Great Crash and the 2008 Credit Crisis. What are the lessons learned from the 2008 Credit Crisis? Please elaborate.
Wilson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10
Suppose Chastain’s managers believe that the inventory turnover can be raised to 9.9 times. What would Chastain’s cash conversion cycle,
what is the project’s NPV? IRR? Payback period? Discounted payback period? Should the project be accepted?
Holdup Bank has an issue of preferred stock with a $5 stated dividend that just sold for $87 per share. The company’s tax rate is 34%. What is the bank’s cost of preferred stock?
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