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O'Connell & Co. expects its EBIT to be $58,000 every year forever. The firm can borrow at 9 percent. O'Connell currently has no debt, and its cost of equity is 12 percent and the tax rate is 35 percent. The company borrows $180,000 and uses the proceeds to repurchase shares. What is the cost of equity after recapitalization?
I have discussion which deals with exercises in determining Equivalent Annual Rate (EAR.) This is closely related to the time value of money and deals with how frequency of compounding of interest rate affects value calculation.
Chua Chang & Wu Corporation is considering its operations for next year, and the CEO wants you to forecast the firm's additional funds needed. Information for use in your forecast are shown below. Based on the AFN equation.
The Earned Income Tax Credit is a very effective program, so much so that some people are urging its expansion instead of raising the minimum wage. Discuss the pros and cons of expanding the ETIC. Ignore the minimum wage in your answer.
How much interest did you pay in the first year and how much was your mortgage reduced in the first year?
Herbert purchased a ten year annuity for $96,000 late in 2008. How much of $16,000 received this year will be taxable?
If the stock sells for $39 per share, what is your best estimate of the company's cost of equity?
Illustrate a difference between the two models and how does the concept of "no arbitrage" affect each model?
What coupon rate should the company set on its new bonds if it wants them to sell at par?
What exactly are FELINE PRIDES securities and how are they structured to provide the benefits of both equity and debt? How does the use of these securities create value for CCI? What are the advantages/disadvantages to firms using this security?
A company is 30% financed by risk-free debt. The interest rate is 8%, the expected market risk premium is 6%, and the beta of the company's common stock is 0.69.
Describe why strengthening basis benefits a short hedge and hurts a long hedge.
What effective annual rate will the firm pay for financing with commercial paper, assuming that it is rolled over every 90 days throughout the year.
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