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RAK, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $42,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 18 percent higher. If there is a recession, then EBIT will be 30 percent lower. RAK is considering a $100,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. RAK has a tax rate of 35 percent.
a-1 Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EPS Recession $ Normal $ Expansion$
b-1 Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EPS Recession $ Normal $ Expansion $
Assume that the forward exchange rate is for 90 days forward and the interest rates are annualized 90- day rates in Question 9. Can a trader earn covered interest arbitrage profits?
What did management say about United airlines (United continental holding ) margins this quarter? They might say something about the gross margin or the EBIT margin or the operating margin (or some other margin).
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Determine the EOQ for shoelaces.- The total annual inventory costs of this policy.- The frequency with which Allstar should place its orders for shoelaces.
Baatar Hotels is interested in developing a new hotel in Mongolia. The company estimates that the hotel would require an initial investment of $20M. Baatar expects the hotel will produce positive cash flows of $5M a year at the end of each year for t..
You’ve observed the following returns on Hacker Corporation’s stock over the past five years: -25%, 36%, 9%, 11%, and 17%. Suppose the current T-bill rate is 0.15%. What is the risk premium of owing Hacker Corporation s stock. What range of returns w..
Describe the different mechanisms available to a firm to use to repurchase shares. Describe the circumstances under which sensitivity analysis might be a reasonable basis for determining changes to a firm’s EBIT or FCF.
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Maggie's Muffins, Inc., generated $2,000,000 in sales during 2013, and its year-end total assets were $1,300,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
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