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Monroe Inc. is an all-equity firm with 500,000 shares outstanding. It has $2,000,000 of EBIT, and EBIT is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) equal dividends per share (DPS), and its tax rate is 40%. The company is considering issuing $4,250,000 of 9.00% bonds and using the proceeds to repurchase stock. The risk-free rate is 4.5%, the market risk premium is 5.0%, and the firm's beta is currently 0.90. However, the CFO believes the beta would rise to 1.10 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: P0 = EPS/rs because EPS = DPS.)
Define the term "Statement of Cash Flows." Explain why and how the statement of cash flows is important information you would need to run a business? In your opinion, do the three three main sections of the statement of cash flows also apply to you a..
Westbrook Equipment Company posted sales of $843,800 and costs of $609,900 for 2012. The firm paid $38,200 in interest and $12,000 in dividends. It also increased retained earnings by $61,763 for the year. The depreciation was $76,400. What is the av..
Dinah’s Donuts is preparing an income statement. Gross sales equal $270,000. Returns and allowances equal $11,000. Cost of Goods sold equals $150,000. What is Dinah’s gross margin?
Use the replicating-portfolio approach (instead of the risk-neutral valuation approach) to find the value of a put option on $15,000 with a strike price of €10,000.
Suppose an investor would like to buy 200 Treasury notes. The investor wants notes with an annual coupon rate of 7%, a 3-year maturity, and semi-annual coupon payments. Assume each Treasury note has a par value of $1,000. Assuming the yield curve is ..
Determine the annual financing cost of the loan under each of the following conditions Kittanning currently maintains $100,000 in its account at the bank that can be used to meet the compensating balance requirement.
Which one of the following is false regarding investment decision-making criterion?
A student plans to win first prize in a competition that began Jan 2 and ends March 2. He will invest his $10,000 winnings in a friend’s 5-year-old startup company and expects to gain 10% interest per year, compounded annually, based on contracts the..
ET Industries has net working capital of $12,700, current assets of $38,200, equity of $53,400, and long-term debt of $11,600. What is the amount of the net fixed assets?
Assume you receive an 8 year annuity with annual payments to you of $600 at the end of each year, with the first payment being received at the end of year 1 and the last payment being received at the end of year 8. You invest each payment in an accou..
Carter Enterprises can issue floating-rate debt at LIBOR +1 percent or fixed-rate debt at 9.00%. Brence Manufacturing can issue floating-rate debt at LIBOR +2.4% or fixed-rate debt at 12%. What is the net payment for Brence if they engage in the swap..
Nations Bank offers to lend you $50,000 at a nominal rate of 5.0%, simple interest, with interest paid quarterly. Bank of US offers to lend you the $50,000, but it will charge 5.5%, simple interest, with interest paid at the end of the year. What's t..
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