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1. What are the major limitations of EBIT-EPS analysis as a technique to determine the optimal capital structure?
2. In practice, how can a firm determine whether it is operating at (or near) its optimal capital structure?
3. Under what circumstances should a firm use more debt in its capital structure than is used by the average firm in the industry? When should it use less debt than the average firm?
4. Why do public utilities typically have capital structures with about 50 percent debt, whereas major oil companies average about 25 percent debt in their capital structures?
5. What is cash insolvency analysis, and how can it help in the establishment of an optimal capital structure?
The older bonds have a face value of $100,000 each and pay 18% in semi-annual instalments. They have an early call provision for a 5% premium over face value. Find the yield, interest payments, bond price, and all info related to profits and expenses
Cost of debt using both methods Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. Find the net proceeds from sale of the bond, Nd. Calculate the before-tax and after-tax costs of debt.
A firm has a choice between borrowing money from a bank versus issuing public bonds for the same amount. Give an example of one item (a ratio or a number, or any other quantitative item but not something like a feeling or impression) that will be par..
You are thinking about buying a share of Glencoe Industries, which has a current market price of $30.00 per share. Glencoe expects to pay a dividend of $1.125 per share next year. Your required rate of return on these types of investments s 6% and is..
Arnold Ziffle established a trust fund that provides $75,000 in scholarships each year for worthy students. The trust fund earns a 5 percent rate of return. How much money did Ziffle contribute to the fund assuming that only the interest income is di..
You are benefits consultant reviewing the disability coverage’s offered by one of your client firms. ."The plan is not integrated with workers' compensation or Social Security benefits at all. Explain to the firm why they have such a high rate of dis..
Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founde..
A coupon bond paying semi annual interest is reported as having an ask price of 126% of its $1,000 par value. If the last interest payment was made one month ago and the coupon rate is 6%, what is the invoice price of the bond?
Which of the following values will be equal to zero when a firm is operating at the accounting break-even level of output?
Remington’s has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earning..
A firm is considering bidding on a project to produce eight widgets per year for the next four years. In order to complete the project, the firm must lease facilities for $30,000 per year, purchase equipment that costs $100,000, as well as pay labour..
A stock price is currently $80. It is known that at the end of four months it will be either $75 or $85. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a four-month European put option with a strike pric..
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