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Your boss, whose background is in financial planning, is concerned about the company’s high weighted average cost of capital (WACC) of 28%. He has asked you to determine what combination of debt-equity financing would lower the company’s WACC to 16%. If the cost of the company’s equity capital is 6% and the cost of debt financing is 27%, what debt-equity mix would you recommend?
The debt-equity mix should be
Which of the following is data that includes past stock prices and volume, financial statements, corporate news, analyst opinions, etc.?
We are examining a new project. We expect to sell 5,600 units per year at $70 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $70 × 5,600 = $392,000. After the first year, the project can ..
Explains what happens to a firm’s break-even point if it is able to lower its fixed operating costs but keeps its variable operating costs per unit constant.
Write a simple explanation of the differences between: 1- Long Call 2- Short Call 3- Long Put 4- Short Put.
An electronics firm invested $60,000 in a precision inspection device. It cost $4000 to operate and maintain in the first year and $3000 in each of the subsequent years. At the end of 4 years, the firm changed their inspection procedure, eliminating ..
Review IBM’s income and balance sheet statements for the last 5 years (you will get this data from their website) and comment on trends in revenue, gross margins, R&D, SG&A, cash position and debt (it is suggested that you convert income statements t..
Ransport Company has made an investment in another company that will guarantee it a cash flow of $37,250 each year for the next five years. If the company uses a discount rate of 15 percent on its investments, what is the present value of this invest..
Working capital will revert back to normal at the end of the project.
When using a portfolio rate, what would cause the portfolio interest rate on a UL to perform better than the market in an extended declining interest rate market and yet would perform worse than the market in an extended increasing interest rate envi..
You have been asked by the CFO to prepare a financial forecast for the coming year, using an Excel model, and then to present your forecast to the executive officers. Would you want to set up the model with a number of scenarios? Explain why.
What is the modified duration of these bonds? What is the price volatility if the potential adverse move in yields is 25 basis points?
Debt finance does not affect operating risk but it does add financial risk.
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