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Retlaw Corporation (RC) manufactures time-series photographic equipment. It is currently at its target debt-equity ratio of 0.75. It's considering building a new $40 million manufacturing facility. This new plant is expected to generate after-tax cash flows of $7.6 million in perpetuity. The company raises all equity from outside financing. There are three financing options:
A new issue of common stock: The flotation costs of the new common stock would be 9% of the amount raised. The required return on the company's new equity is 16%.
A new issue of 20-year bonds: The flotation costs of the new bonds would be 4% of the proceeds. If the company issues these new bonds at an annual coupon rate of 8.0%, they will sell at par.
Increased use of accounts payable financing: Because this financing is part of the company's ongoing daily business, it has no flotation costs, and the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of 0.170. (Assume there is no difference between the pre-tax and after-tax accounts payable cost.)
What is the NPV of the new plant? Assume that RC has a 35% tax rate.
Suppose that you are comparing put and call prices on the same underlying stock and the strike prices and time-to-expiration of the two options match.
Database Systems is considering expansion into a new product line. Assets to support expansion will cost $740,000. What would net income and return on assets (investment) be for the year
Company is buying new equipment for $120,000. You estimate life of this machine is 6 years and you will depreciate it in a straight line over 5 years to be conservative and suppose no terminal value.
Research this company and its industry and develop your estimate(s) of the value of the company's stock. You will use your beta estimate and apply the major method: Free Cash Flow You will compare the estimate you get from this method with each other..
Merideth Harper has invested $25,000 in Southwest Development Company. The firm has recently declared bankruptcy and has $60,000 in unpaid debts. Explain the nature of payments, if any, by Merideth in each of the following situations.
If you refinance your loan at the government rate, you will amortize the amount you still owe under the original mortgage over 30 years, and your payment will be $750 per month. What is the effective annual rate (EAR) on your new loan?
Swimkids is a swimsuit manufacturer. They sell swim suits at a selling price is $30 per unit. Swimkids variable costs are $18 per unit. Fixed costs are $86,500. Swimkids expects sales of $265,300 next year. What is Swimkids's margin of safety?
Define debits and credits and explain how they are used to record business transactions. Is it true that debits always increase and credits always decrease?
A company issues 15-year, $1,000 par-value bonds,with a coupon rate of 5%. The bonds are sold for $619.70. The tax rate is 30%. Compute the cost of debt before taxes and after taxes.
The salvage value of the fixed assets is $6,900 and the tax rate is 34 percent. What is the operating cash flow for year four?
If 3LS turns over its inventory 20 times during the year, what is the average amount of inventory that is shown on its balance sheet?
Develop a five-year strategic plan with cost estimates and a time line. It should be 5-7 double-spaced, typed (12 point) pages plus exhibits. Your plan should include/address the following points:
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