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Colt Systems will have EBIT this coming year of $ 17 million. It will also spend $7 million on total capital expenditures and increases in net working capital, and have $3 million in depreciation expenses. Colt is currently an all-equity firm with a corporate tax rate of 35% and a cost of capital of 10%. a. If Colt's free cash flows are expected to grow by 8.7% per year, what is the market value of its equity today? b. If the interest rate on its debt is 8%, how much can Colt borrow now and still have non-negative net income this coming year? c. Is there a tax incentive today for Colt to choose a debt-to-value ratio that exceeds 49%? Explain.
What is expected of the CPA firm in order to merit such confidence?
A firm currently has no debt. The firm has 15 million shares outstanding and those shares currently have a market price of $25 per share. The firm is contemplating selling $50 million in bonds and using the proceeds to repurchase shares of stock. do ..
The Lion Corp.(LC) issues a 30 year callable bond which is also convertible to 50 shares of LC common stock. Explain why LC would issue a bond with these features as opposed to just issuing the bond without such options. As a bondholder, would you n..
Zapata Corporation will pay dividends of $4.75, $5.25, and $5.75 in the next three years. Thereafter, the company expects its dividend growth rate to be a constant 7 percent. If the required rate of return is 15 percent, what is the current market pr..
Discuss the meaning of the following statement:"The significance of financial statement data is not in the amount alone." Illustrate with examples from the Microsoft Company. Once illustrated with Microsoft, discuss Best Buy in a new paragraph
Mike and Cindy are buying a new car, but they are on a budget. How much can they afford to borrow given this information?
What is the “value” of a bond that matures in 14 years with an annual coupon rate of 5% and an investor required rates of return is 7% (assume a $1,000 par value). You purchased a bond that pays $70 per year in interest (dividend), it matures in 15ye..
The preferred stock of Acme International is selling currently at $110. If your required rate of return is 10 percent, what is the dividend paid by this stock? Bellamee Company has bonds outstanding with five years to maturity and a face value of $5,..
MMK Cos. normally pays an annual dividend. The last such dividend paid was $1.55, all future dividends are expected to grow at a rate of 8 percent per year, and the firm faces a required rate of return on equity of 14 percent. If the firm just announ..
Consider the cell phone giant company Apples. Apple has 3 Key Financial Ratios: gross margin, sales growth rate, and price-to-earnings (P/E) ratio. How could you use Apple’s example in the real world and how this can help run a business?
What is the implied annualized inventory turnover for Amazon for these years?- What different interpretations about future performance could a financial analyst infer from this change?
What is the value of a bond that has a par value of $1000, a coupon rate of 17.24% (paid annually), and that matures in 8 years. Assume a required rate of return on this bond is 13.53%.
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