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GE Corp. is examining its capital structure with the intent of arriving at an optimal debt ratio. It currently has no debt and has a beta of 1.5.
The riskless interest rate is 9%, and the risk premium is 8.3%.
Your research indicates that the debt rating will as follows at different debt levels: The firm currently has 1 million shares outstanding at $ 20 per share. (Tax rate = 40%) What is the firm's optimal debt ratio?
Cash flow. Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 40 percent tax bracket. Compute its cash flow
Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has recently experienced a market reevaluation. The firm has a bond issue outstanding with 15 years to maturity and a coupon rate of 8 percent, with interest being pai..
According to the Capital Asset Pricing Model (CAPM), what determines the amount of reward an investor receives for bearing the risk associated with an individual security?
A large profitable corporation purchased a small jet plane for use by its executives. The plane cost $3,500,000. It has a depreciation life of seven years and $0 salvage value. determine the present worth of all the depreciation charges assuming an i..
Hayden Inc. has a number of copiers that were bought four years ago for $33,000. Currently maintenance costs $3,300 a year, but the maintenance agreement expires at the end of two years and thereafter the annual maintenance charge will rise to $9,300..
You would like to buy shares of Sirius Satellite Radio (SIRI). The current ask and bid quotes are $4.10 and $4.07, respectively. You place a market buy order for 570 shares that executes at these quoted prices. How much money did it cost to buy these..
Abrams Steel Company has very high operating leverage due to the capital intensive nature of the steel business. Abrams' CEO is concerned about the variability in the firm's EPS if sales should drop, and decides to take action. Which of the following..
The cost of equity: Gangland Water Guns, Inc., is expected to pay a dividend of $2.10 one year from today. If the firm's growth in dividends is expected to remain at a flat 3 percent forever, then what is the cost of equity capital for Gangland if th..
The Last Gasp Water Company sells water by the gallon for a price of $0.75. Fixed coasts for the company are $200,000 , and variable coasts are $0.40 per gallon . the company already has $2,000,000 of 10% bonds on its balance sheet. Calculate the deg..
Given a floater/inverse floater tranche with a total principal amount of $25,000,000, 7% interest, and even allotments to the floater class and the inverse floater classes what is the maximum interest rate cap on the floater class?
Mortgage lenders base the mortgage interest rate they offer you on your credit rating. This makes it financially critical to maintain a credit score of 700 or higher. How much more interest would you pay on a $207,000 home if you put 20% down and fin..
The Financial Advisor is a weekly column in the local newspaper. Assume you must answer the following question. “I recently retired at age 65, and I have a tax-free retirement annuity coming due soon. How does increasing the interest rate change you..
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