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Yin Corp and Yang Inc are considering a merger. Yin expects $75 million in free cash flow next year, which is forecast to grow at 1% forever. Yang expects $25 million in free cash flow next year, which is forecast to grow at 3% forever. Because their cash flows are quite volatile, neither firm has any leverage right now. By merging, Yin and Yang expect to generate more stable cash flows that would allow the combined firm to have 20% leverage without risking default. Suppose the tax rate is 40%, the risk-free rate is 2%, current equity betas for both companies is 1, and the market risk premium is 5%. If the cost of debt issued by the combined firm would be 3%, how much value could the two companies create by merging together?
A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $3,000 per month for the next three years and then $6,000 per month for two years after that. If the bank is charging customers 10.00 percent APR,..
A portfolio contains equal investments in 6 different loans with durations of 1, 2, 2, 2, 4, and 5 years. You have estimated that it is 95% certain that interest rates won't change by more than 2% over the next year. Compute the maximum possible loss..
ROE Needham Pharmaceuticals has a profit margin of 5.5% and an equity multiplier of 1.8. Its sales are $120 million and it has total assets of $50 million. What is its Return on Equity (ROE)?
Using Excel, create a three-year pro forma income statement for your organization - CAFE (or product/service).
A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years,
Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12 million. This investment will consist of $2 million for land and $9.60 million for trucks and ot..
Assuming the three-month risk-free rate is 10%, what was the appropriate stipulated forward price on the entered forward contract.
It is being depreciated on a straight line basis to a zero salvage value over an original ten year life.
Shawna just turned 21 and currently has no investments. She plans to invest $5,500 at the end of each of the next 8 years, starting with her 22nd birthday. The rate of return on her investment is 4% per year, compounded monthly. What will be the bala..
Although we say that a firm's dividend policy does not matter in an ideal world without frictions (i.e. no taxes, no transaction or issuance costs), in practice, we often observe firms that announce a dividend cut experience a decline in their stock ..
choose an organization as the focus for a project proposal. the organization can be an existing company nonprofit
Debt: 5,000 6 percent coupon bonds outstanding, $1,000 par value, 23 years to maturity, selling for 103 percent of par; the bonds make semiannual payments. Common stock: 105,000 shares outstanding, selling for $61 per share; the beta is 1.1. Find the..
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