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Suppose that a firm is an all-equity firm. Its current annual operating cash flows are $27 million, perpetually. It has 10 million shares outstanding. The current required rate of return on equity is 10%. It is considering a new investment of similar risk with initial outlay of $20 million, and added annual operating cash flows of $3 million, perpetually.
- What will the total MV of the firm be if common stock is used to finance the investment?
- What if $20 million of perpetual, 8% coupon bonds are issued to finance the investment?
- Suppose that it issues the bonds. What is the new cost of equity capital?
The Ziggy Trim and Cut Company can purchase equipment on sale for $4,300. The asset has a three-year life, will produce a cash flow of $1,200 in the first and second year, and $3,000 in the third year. The interest rate is 12%. Calculate the project'..
Under perfect capital markets, the valuation of a company __________ on the level of leverage". When corporate taxes are the only market imperfection considered,"
Calculate the total funds received by Zimba from the sale of the 1.6 million shares of stock. Calculate the gross proceeds per share.
Floating rate CDs differ from regular CDs in that: A. they have longer maturity. B. they differ substantially in default risk. C. they are not taxed. D. they have coupons that are frequently reset. E. All of these describe differences.
If a limited-pay whole life insurance policy is determined to be a “MEC” (Modified Endowment Contract): Select one: a. cash value increases cease immediately b. distributions, including policy loans, will likely be includable in income c. death benef..
What is the interpretation of the fact that the Google’s systematic risk is larger? What makes it more sensitive to the market risk?
The price of $8000 face value commercial paper is $7930 . if the annualized discount rate 4% when will the paper mature ? if the annualized investment rate % is 4% , when the paper mature
Discuss how you may have used TVM in a recent investment or loan decision and explain some of the TVM details that may have been involved in your transaction.
You buy a bond for $1118 that pays $20 interest every 6 months. It will reach maturity in 9 years at which time it will return its face value of $1000 plus the final $20 interest payment. What is the pre-tax annual rate of return on this bond?
using the straight line and the MACRS depreciation methods Which depreciation method is best for year two?
A recent college graduate has taken a new job at Work LLC and since the company does not offer a traditional pension plan, she plans to take advantage of a tax-free investment account backed by a reputable financial institution that offers a guarante..
Triton Company's copy department, which does almost all of the photocopying for the sales department and the administrative department, budgets the following costs for the year, based on the expected activity of copies: Assuming the following copies ..
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