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Pardon Me, Inc., recently issued new securities to finance a new TV show. The project cost $13.8 million, and the company paid $705,000 in flotation costs. In addition, the equity issued had a flotation cost of 6.8 percent of the amount raised, whereas the debt issued had a flotation cost of 2.8 percent of the amount raised. If the company issued new securities in the same proportion as its target capital structure, what is the company’s target debt−equity ratio? (Do not round intermediate calculations and round your final answer to 4 decimal places, e.g., 32.1616.)
Romo Enterprises needs someone to supply it with 119,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. If your tax rate is 34 percent and you require a retu..
Charles City Hospital plans on issuing a tax-exempt bond at the bond is $1,000. At what required market rate (3,6, or 12 percent) does the above bond sell at a discount? At a premium?
Manu Inc. ("Manu") is a specialized manufacturing corp that has been in business for 22 years. Walter and Jane Smith, husband and wife, founded the business and own 60 percent of Manu's outstanding common stock. Linda wants to know if she has any rig..
Selection of a source of short-term financing should include all of the following EXCEPT a. The effect of the use of credit from a particular sorce on the cost and availability of other sources of credit b. The flotation costs of debentures c. The ef..
The globe Incorporated has EBIT of $20 million for the current year. On the firm balance sheet, there is $80 million of debt outstanding that carries a coupon rate of 8 percent. Investors seek a return of 12 % on the firm, and the firm has a corporat..
Hughes Co. is growing quickly. Dividends are expected to grow at a rate of 22 percent for the next three years, with the growth rate falling off to a constant 7 Percent thereafter. If the required return is 12 percent and the company just paid a $1.3..
Calculate the market value of a firm with total assets of $105 million and $50 million of 10% perpetual debt in the capital structure. The perpetual EBIT is expected to be $9 million and the marginal tax rate is 40%?
Dayman Inc. has asked you to evaluate a proposal to buy a new costume machine. The base price is $110,000, and shipping and installation costs would add another $15,000. The machine falls into the MACRS 3-year class, and it would be sold after anothe..
Consider a 3-month European put option on a non-dividend-paying stock, where the stock price is $60, the strike price is $60, the risk-free rate is 3% per annum. Stock price will either move up by 10% or down by 5%, every month. Price the put with bi..
Suppose that competition amongst bond brokers causes bonds to become more liquid. Using the liquidity preference model, show graphically how this will affect money demand and the nominal interest rate
Consider the following cash flows. All market interest rates are 12% right now. Year 0 1 2 3 4 Cash Flow 160 170 180 230 1 (a) What price would you pay for these cash flows? What total wealth do you expect after 2.5 years if you sell the rights to th..
A 7-year, 11.00% semiannual coupon bond with a par value of $1000 may be called in 5 years at a call price of $1,155.00. The bond sells for $970.50. (Assume that the bond has just been issued.). What is it’s yield to maturity?
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