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Sao Luís Corporation is an all equity firm with a total value of $22 million. It requires an additional capital of $7 million, which may be either equity, or debt at the interest rate of 7%. After the new capitalization, the expected EBIT is $6 million, with standard deviation of $2 million. The company pays income tax at 45% rate, and it has 2 million shares outstanding. What is the preferred method of raising new capital, if the objective is to maximize the EPS? What is the probability that you are right in your decision? Show solutions.
The current price of a stock is $84, and three-month European call options with a strike price of $85 currently sell for $4.20. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2..
Describe how you, as an analyst, would estimate the potential impact of the Huntingdon Ingalls Industries spin-off on the long-term value of Northrop Grumman’s share price?
Evaluate the costing process and procedures of the organisation with respect to method or approach utilised - capital decision making process within the organisation with regards to what methods are utilised, how such methods are chosen, how project..
As the cost of capital increases,
The following table shows the prices of a sample of Treasury strips. Each strip makes a single payment at maturity. Calculate the interest rate offered by each of these strips. s the yield curve upward-sloping, downward-sloping, or flat?
Hawkeye mining corp. is close to exhausting its current mining resources. Consequently, the firm’s earnings and dividends are expected to decline at a constate rate of 6% per year. The most recent dividend $4.10 and the required return on the stock i..
Bobcat Company, US-based manufacturer of industrial equipment, just purchased a Korean company that produces plastic nuts and bolts for heaby equipment. Bobcat can invest at the rates given above or borrow at 2% per annum above those rates. Bobcat's ..
A company with a return on equity of 15.7% and a plowback ratio of 70% would expect a constant-growth rate of:
Among a company’s assets and accounting records, an actuary finds a 10-year bond that was purchased at a premium. What is the value of the premium?
A 6-year annuity of twelve $10,200 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. If the discount rate is 8 percent compounded monthly, what is the value of this annuity five years from now? If the ..
Calculate the present value of an annual payment of $920.00 you would received for 10 years if the interest rate is 7.01%. (Do not round intermediate calculations. Round your answer to 2 decimal places) Present value $ a-2. Calculate the present valu..
If a firm is expected to have relatively high volatility in its future cash flows, would you advise the firm to pay no dividends, low dividends, high dividends, or will you advise the CFO to avoid using any equity financing at all? Please outline you..
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