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You wish to start a small side business, competitors in this industry have the following
costs of capital:
Firm1: re=15% rd=5% d/e=.6
Firm2: re=18% rd=5.2% d/e=.68
A. What will be a good estimate of your unlevered cost of capital for your new business?
B. If your firm will have cashflows of 3 million next year and it will grow by 2% per year what is the unlevered value of your firm?
C. If your tax rate is 35% and you wish to have a constant interest coverage ratio of 0.2, what will the levered value of your firm be?
Give examples of how ratios gleaned from the financial statements can be used as a tool in helping a firm plan for the future. What do these ratios tell an individual analyzing them? What limitations prevent the forecasts from being foolproof?
Calculate the exchange rate at maturity for which the owner of the call will break even.
EAC Approach You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $14,000 to purchase and which will have OCF of −$1,200 annually throughout the vehicle’s expected life of t..
A greaterthanorequalto coal mining operation has installed an in-shaft monitoring system for oxygen tank and gear readiness for emergencies
A company issued preferred shares two years ago, paying a $3.52 dividend, which offered investors an original yield of 8%. Currently, the required return on companies with preferred shares of comparable risk yield 10%. Given this information, what sh..
Closing is included in which of the following phases of the acquisition process?
Which of the following statements regarding the weighted average cost of capital (WACC) is correct? The WACC used to evaluate capital budgeting projects is a historical, before-tax cost of capital. Target capital structure changes do not affect the W..
You wrote a piece of software that does a better job of allowing computers to network than any other program designed for this purpose. A large networking company wants to incorporate your software into their systems and is offering to pay you $485,0..
A company’s financial statements consist of the balance sheet, income statement, and statement of cash flows. Describe what each statement tells us and their limitations. What is the purpose and importance of financial analysis?
Your company is planning to borrow $0.5 million on a 3-year, 8%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal?
Scrooge Inc. has two mutually exclusive projects available whose cash flows are: Year 0 1 2 3 4 5 Project A -20,000 12,000 8,000 6,000 4,000 2,000 Project B -20,000 9,000 6,000 6,000 8,000 6,000 The required rate of return is 14% What is the NPV of P..
Explain the term 'zero sum game' in a derivative transaction. Discuss the main difference between Treynor's position of investment risk measurement and that of Sharpe and use your answer to deduce the equation of the CAPM in each.
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