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A firm's CFO is considering increasing the target debt ratio, which would also increase the company's interest expense. New bonds would be issued and the proceeds would be used to buy back shares of common stock. Neither total assets nor operating income would change, but expected earnings per share (EPS) would increase. Assuming the CFO's estimates are correct, which of the following statements is CORRECT?
a)Since the proposed plan increases the firm's financial risk, the stock price might fall even if EPS increases.
b)If the plan reduces the WACC, the stock price is likely to decline.
c)Since the plan is expected to increase EPS, this implies that net income is also expected to increase.
d)If the plan does increase the EPS, the stock price will automatically increase at the same rate.
e)Under the plan there will be more bonds outstanding, and that will increase their liquidity and thus lower the interest rate on the currently outstanding bonds.
a. What is the Payback Period for this project? b. What is the NPV of this project, if the discount rate is 8.6%? Should the firm accept this project? c. What is the IRR of this project? Should the firm accept this project?
Your coin collection contains 42 1947 silver dollars. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2049, assuming they appreciate at a 10 percent annual rate..
Over the past year, you earned a return of 13.6 percent on your investments. During that period, the inflation rate was 4.8 percent and the risk-free rate of return was 5.1 percent. What actual real rate of return did you earn?
In a non instanteneous receipt model, daily demand is 55 units and daily production is 120 units, Co=$70 and Cc=$4 per unit per year. What is the maximum inventory level? (Assume that the facility is open 365 days per year.
What is the value of ratio for FY 2011 and does the ratio you calculated in part (b) compare favorably or unfavorably to the rule of thumb for this ratio? Write "none" if there is no rule of thumb.
The effect of interest rate change on the market value of Financial Institution's equity is function of three things. What are they and how do the affect the equity value change?
The Elvisalive Corporation, makers of Elvis memorabilia, has a beta of 2.75. The expected return on the market is 14% and the risk free rate is 4%. According to the CAPM, what is the expected return on Elvisalive stock?
In its 2006 yearly report, the coca-cola company reported sales of $24.09 billion for fiscal year 2006 and 23.10 billion for fiscal year 2005. The firm also reported operating income of 6.31 billion
Evaluate how many shares will be repurchased and what is the value of equity after the repurchase has been completed? What is the price per share?
What is the net operating cash flow in a particular year for a proposed project with the following data?
The firm's common stock is presently selling for $75.00 par per share and it pays a dividend of $3.50. The firm is growing at a constant rate of 8.00%.
In the financial management component of M and A activity, valuing a firm extremely important given how many deals fail and how many Acquirers overpay.
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