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Bruce & Co. expects its EBIT to be $42,000 every year forever. The company can borrow at 6 percent. The company currently has no debt, its cost of equity is 10 percent, and the tax rate is 35 percent. The company borrows $108,000 and uses the proceeds to repurchase shares.
What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Cost of equity %
What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC %
A firm has 3,000,000 shares of common stock outstanding with a market price of $20.00 per share.
Absalom Motors's 8% coupon rate, semiannual payment, $1,000 par value bonds that mature in 30 years are callable 6 years from now at a price of $1,025. The bonds sell at a price of $1,254.87, and the yield curve is flat. Assuming that interest rates ..
Productivity improvement factors when applied to an analogy can be impacted by all of the following EXCEPT
You borrow $78,000 to purchase a new car. The dealership offers you a 7% APR for 5 years. how much of your first car payment is interest expense? Explain how you found your answer.
Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.
Cost of Common Equity and WACC Patton Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Its before-tax cost of debt is 11% and its marginal tax rate is 40%. The current stock price is P0 = $..
Companies raise funds through debt capital (principally through bonds) or equity (common stock). More than 15 years ago the CFO of Home Depot spoke at Nova (I cannot remember the exact date due to my age). He was asked the following question: "Why do..
Now let's assume that the convexity of this bond is 13.47. Please estimate the price change by using both duration and convexity.
An increase in expected inflation would result in
Union local school district has a bond outstanding with a coupon rate of 3.7% paid semiannually and 16 years to maturity. The yield to maturity on this bond is 3.9%, and the bond has a par value of $5000. What is the price of the bond?
Interworld Distributors has paid quarterly cash dividends since 1980. The dividends have steadily increased from $.25 per share to the latest dividend declared of $2.00 per share. The board of directors is eager to continue this trend despite the fac..
You have discovered that when the required rate of return on a bond you own fell by 0.5 percent from 9.7 percent to 9.2 percent,
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