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Zego Corp. is an all-equity firm and the shareholder's required rate of return is 10 percent. Its EBIT is $1,000,000 per year forever and the firm faces a corporate tax rate of 30 percent. Zego now decides to issue $4,000,000 of risk-free debt with an interest rate of 5 percent and use the proceeds to buy back outstanding shares. (i) What is the market value of Zego's equity before the capital structure change? (ii) What is the value of the tax shields generated by the new debt issue? (iii) What is the total firm value of Zego after the capital structure change? (iv) What is the shareholder's required rate of return after the capital structure change?
Explain the concept of company and bank cash balances. What are the two types of delays in the movement of money among depositors and banks?
Andruw Jones corporation had the following stockholders equity as of January 1, 2008. Common Stock, $5 par value, 20000 shares issued $100,000
Corporation A and B are two identical corporation with equal asset values of $50 million. Corporation A is financed by equity only and has 100,000 shares outstanding.
Paramount, Corporation just paid a dividend of $2.05 per share, and the firm is expected to experience constant growth of 12.50 percent over the foreseeable future.
Gold Mining Company is seeking to increase $10,000,000 through a rights offering. The firm presently has 1,000,000 shares of common stock outstanding at a current market price of $25 per share.
The company's tax rate is 30 %. a) what is the company's cost of debt? b) what is the company's cost of equity? c) what is the company's wacc?
What is the liquidity premium (LP) on Keys' bonds?
Big Tom's stock is not expected to pay cash dividends for three years. In years 4, 5, and 6 the cash dividend will be $6 a year, and year seven to infinity the cash dividend will be $8 a year.
Budget allocation - calculate the end values at the end of the respective periods.
What is Richard's incremental profit if he chooses option 3 over option 2?
Analysts give Proctor & Gamble, the consumer products firm, an equity beta of 0.65. The risk-free rate is 4.0 percent. What market risk premium is she assuming?
LSI recently issued $195,000 of perpetual 9% debt and used the cash to do a stock repurchase. Earnings for LSI are anticipated to be $83,000 annually before interest and taxes.
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