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Wolfgang can borrow at 12.25 percent. The company currently has no debt, and the cost of equity is 15.5 percent. The current value of the firm is $679,000. The corporate tax rate is 40 percent.
What will the value be if the company borrows $228,000 and uses the proceeds to repurchase shares??
During 2014, Raines Umbrella Corp. had sales of $790,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $610,000, $85,000, and $190,000, respectively. In addition, the company had an interest expense of $52,0..
Suppose call and put prices are given by: Strike 75 80 Call premium 7 8 Put premium 4 10. What no-arbitrage condition is violated by the call premiums? What spread position would you use to effect an arbitrage?
You work for a private land management consulting firm. What is the per acre present value of the investment in forest management?
Peter is interested in investing in Hong Kong and will set up a porfolio worth $100,000. He received the following financial information and works out the investment plan. ABC Company paid a dividend of $2.50 and announced that the next dividend woul..
A Smith industry has $24,000 in deposits that have been recorded by Smith but not by its bank. Smith also has $22,450 in outstanding checks that have not yet cleared the bank. Current balance is $14,400. Find: Net float. Is this desirable? Explain.
When the assumptions of Modigliani and Miller’s Irrelevance Hypothesis regarding corporate capital structure are relaxed so that they are more consistent with real-world conditions, i.e. there are corporate taxes (and interest payments are tax deduct..
Provide an example of a loan approved in a community bank and how/why it conformed to the bank’s lending policies. Describe the type of loan, the characteristics of the borrower, the financial analysis performed by the loan officer in analyzing the l..
The Aqua Liquid Assets Money Market Mutual Fund has a NAV of $1 per share. During the year, the assets held by this fund appreciated by 1.2 percent. If you had invested $20,000 in this fund at the start of the year, how many shares would you own at t..
Vandalay Industries is trying to choose between two alternative (mutually exclusive) machines. Whichever machine is selected will be utilized for the foreseeable future (in addition, for the foreseeable future, all revenues, costs and expenses are ex..
A project is expected to generate an annual cash flow of $300,000 before debt service, during each of the first five years of operation. This expectation represents the mean of a probability distribution of possible cash flows, and has a standard dev..
What is the Total Cash Flow in Year 5 of the project if the equipment can be sold for $5,560 and the tax rate is 32%?
If you have a financial calculator or spreadsheet, determine the internal rate of return and annualize it to determine the cost of borrowing.
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