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The company generates EBIT of $5 million per year in perpetuity. The cost of equity capital r0=18%, and its marginal tax rate, Tc, is 30%
a) What is the market value of the firm?
b) Suppose the company now issues $10 million of 15% debt. (Assume debt is used to repurchase stock.) What will be the market value of the firm?
c) What will be the market value of the firm’s stock?
d) What is the return required by shareholders after debt financing?
To maintain the original $6,700,000 purchasing power, how much should the lender be repaid?
Suppose you observe the following situation: Security Beta Expected Return Peat Co. 1.20 11.2 Re-Peat Co. 1.00 9.6 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?
The recent financial reports indicate that the company has $5.50 of EPS. What is the dividend amount according to the policy?
Which is a characteristic of the price of stock?
At NYIT in 1993 a 100ton electric A/C system (electric driven compressor) with a 100ton natural gas absorption system. Electric then was $.12/kwh and the natural gas unit was expected to half the energy cost.
Carlisle Company has been cited and must invest in equipment to reduce stack emissions or face EPA fines of $18,500 per year. An emission reduction filter will cost $75,000 and have an expected life of 5 years. Carlisle's MARR is 10 percent/year. wha..
What is a cognitive bias and how might it affect investors' decision making?- What does this tell us about the correlation coefficient for their returns?
An investor buys a put option with a strike price of $72. How would the investor hedge the put option position?
Explain what is “Too Big To Fail Bank.” Provide examples. What are the concerns of the rise of these types of financial institutions?
Your company has a liability, which calls for a single payment of 1000 due in ten years, and it funds it with a one-year zero-coupon bond with a price of 200, and a twenty-year zero coupon bond with a price of 800. Current continuously compounded int..
Explain why you might expect to observe a negative correlation between financial leverage and operating leverage.
What is the total cost, including commission, if you have to cover the short sale by buying the stock at a price of $21.50 per share?
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