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ACB Inc. 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 1.3. The T-bill rate is 8% and the T-Bond rate is 9.5%. Your research indicates that the debt rating will as follows at different debt levels:
D/(D+E) Rating Interest rate
0% AAA 10%
10% AA 10.5%
20% A 11%
30% BBB 12%
40% BB 13%
50% B 14%
60% CCC 16%
70% CC 18%
80% C 20%
90% D 25%
The firm currently has 2 million shares outstanding at $30 per share. (Tax rate = 40%)
a. What is the firm's optimal debt ratio?
b. Assuming that the firm restructure and purchases stock with debt, what will the value pf the stock be after the restructuring?
One year ago the spot exchange rate between the Chilean peso and the U.S. dollar was Ps600.00/$. During the past year, the Chilean peso fell 35% in value against the dollar. During this same 12-month period, prices in the U.S. were stable but Chilean..
A frequent criticism of the management of publicly-owned American companies is that they are too short-term oriented, too focused on fast returns, and that this negatively impacts their long term capital budgeting.
Killer Whale, Inc., has the following balance sheet statement items: total current liabilities of $889,551; net fixed and other assets of $1,518,050; total assets of $3,015,920; and long term debt of $830,963. What is the amount of the firm’s current..
What do you mean by horizontal and vertical analysis of financial statements? Discuss the categories of Ratios with the help of suitable example. Explain the concept of working capital. Discuss the working capital management strategies. Elaborate Rev..
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use the Value Line estimated 2009 figures as the ac..
A $10,000 par value bond with coupons at 8%, convertible semi-annually, is being sold three years and four months before the bond matures. The bond is redeemable at $C, and purchase will yield 6% convertible semi-annually to the buyer.
Company A has sales of 4,481,550; income tax of 531,834; the selling, general, and admin expenses of 267,714; depreciation of 380,725; costs of goods sold of 2,496,660; and interest expense of 178,814. Calculate the amount of the firm's after-tax cas..
You are considering two bonds. Bond A has a 9% annual coupon while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected to remain constant.
What is the value of this periodic deposit? Give a detailed explanation on your calculations and what is the sum of their present values? Give a detailed explanation on your calculations.
Kennedy Air Services is now in the final year of a project. The equipment originally cost $34 million, of which 80% has been depreciated. Kennedy can sell the used equipment today for $8.5 million, and its tax rate is 35%. What is the equipment's aft..
Investors can invest in a wide variety of annuities and can also use different annuity settlement options to meet specific retirement needs. For each of the following retirement objectives, identify either (1) a specific annuity or (2) an annuity set..
Cities A and B are 24 miles apart. City A has a population of 23,700; City B has a population of 26,200. The break point according to Reilly’s law is:
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