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A company's assets will have a value, one year from now, equal to $45 millions if economic conditions are good or to $8 millions if the conditions are bad, the two scenarios are equally likely. The company currently has no debt and, after one year, it will terminate its operations. Today (1yr before termination of operations), the company has decided to go through with a recapitalisation issuing a zero coupon bond with face value of $10 millions and 1 yr maturity and buying back its own shares with the proceeds. The expected return required by bondholders is 5.45%. In case of bankruptcy there will be estimated direct costs of bankruptcy for $564,000 and indirect costs of bankruptcy for $789,000. The return on levered equity after the recapitalisation will be 15%. At the moment (before the recapitalisation) the company has 100,000 shares outstanding. Assume no taxation. A) What is the value of levered equity? B) What is the amount of money raised from bondholders when the bond is issued? C) How many shares will be bought back?
Calculate the future value of an investment, given the following characteristics: (a) PV: $30,000, (b) NPER: 25, (c) Rate: 5%. Using the information from Problem 1, calculate the future value of the same investment using daily compounding
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out i..
Suppose the dividends for the Seger Corporation over the past six years were $1.15, $1.23, $1.32, $1.40, $1.50, and $1.55, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method. Assume the market risk pre..
The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 14%, its before-tax cost of debt is 10%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value. The firm's total debt, whic..
You are comparing two annuities with equal present values. The applicable discount rate is 7.5%. One annuity pays $5,000 on the first day of each year for twenty years. How much does the second annuity pay each year for twenty years if it pays at the..
Recently Boeing has maintained a cash balance of over $10 billion. At an annual inflation rate of about 2 percent, does cash have more or less purchasing power at the end of a given year than at the beginning? By how much? Is such a gain or loss refl..
Consider a 9-month dollar-denominated American put option on British pounds. You are given that: The current exchange rate is 1.43 US dollars per pound. The strike price of the put is 1.56 US dollars per pound. The British pound continuously compound..
Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $25,600, and the company expects to sell 1,410 per year. The company currently sells 1,910 units of its existing model per year..
Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $135,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $590,000 p..
Draw the budget constraint that reflects this EITC for a worker who can work up to 4,000 hours per year at a wage of $10 per hour.
Net sales on account during year $517, 500 Cost of merchandise sold during year 450,000 Accounts receivable. -Based on the following data for the current year, what is the inventory turnover?
Explain the type of business organisation and it's ownership This should include : The business's name, the form of business organisation, (Partnership, Sole trader or limited company)
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