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Question - Harris Corp. has a corporate tax rate of 40%, has two sources of funds: long-term debt with a market value of $10,000,000 and an interest rate of 12%, and equity capital with a market value of $14,000,000 and a cost of equity of 14%. Spring?eld has two operating divisions, the McGill division and the Floras division, with the following financial measures for the current year:
Total Assets
Current Liabilities
Operating Income
McGill Division
$4,250,000.00
$4,200,000.00
$2,582,500.00
Floras Division
$16,500,000.00
$3,300,000.00
$2,800,000.00
Required -
(A) What is the company's weighted-average cost of capital?
(B) What is the EVA for each division?
(C) One criticism of the EVA method raised by the authors of the course textbook is that it is subject to manipulation. Why would managers be interested in manipulating the EVA and how could they do it?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
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Accounting problems, Draw a detailed timeline incorporating the dividends, calculate the exact Payback Period b) the discounted Payback Period. the IRR, the NPV, the Profitability Index.
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Create a cost-benefit analysis to evaluate the project
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
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