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Dream, Inc., has debt outstanding with a face value of $6 million. The value of the firm if it were entirely financed by equity would be $17.85 million. The company also has 350,000 shares of stock outstanding that sell at a price of $38 per share. The corporate tax rate is 35 percent. What is the decrease in the value of the company due to expected bankruptcy costs? (Assume that the market value of the debt is the same as the face value of the debt, because the debt has just been issued at today’s market interest rate, that the debt is perpetual, and that in this economy corporate taxes as well as financial distress costs exist.)
Explain why a stock’s market price and intrinsic value may not be the same.
A Japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900. What is the value of the yen in Fijian dollars
Currently, Warren industries can sell 15-year, $1,000 par value bonds paying annual interest at a 12% coupon rate. As a result of current interest rates, the bonds can be sold for $1,010 each; flotation cost of $30 per bond will be incurred in this p..
What would be the before-tax cost of debt (rd) for a company that currently has 10-year, 12% annual coupon bonds outstanding? The bonds are currently selling in the market for $1,200 and have a $1,000 par value. what would the company’s weighted aver..
Determine the 68 percent probability range, if the stock's returns are normally distributed.
Company XYZ has $120 million of assets, 100% financed with equity, and that the firm has 6 million shares of stock outstanding valued at $20 per share. Suppose company XYZ has operating earnings of $27 million. Compute the earnings per share for the ..
Winnebagel Corp. currently sells 26,400 motor homes per year at $39,600 each, and 10,560 luxury motor coaches per year at $74,800 each. The company wants to introduce a new portable camper to fill out its product line; Required: What is the amount to..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.79 million.
Choose of the following statements about opportunity costs is false? The opportunity cost rate to be applied to any investment is the rate of return that could be earned on alternative investments of similar risk.
Suppose 1-year T-bills currently yield 6.00% and the future inflation rate is expected to be constant at 2.95% per year. What is the real risk-free rate of return, r*?
Which of the following statements about the future value of a dollar is true?
Kevin's Bacon Company Inc. has earnings of $6 million with 2, 700,000 shares outstanding before a public distribution.
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