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Overnight Publishing SA (OP) has €3 million in excess cash. The firm plans to use this cash either to retire all of its outstanding debt or to repurchase equity. The firm's debt is held by one institution that is willing to sell it back to OP for €3 million. The institution will not charge OP any transaction costs. Once OP becomes an all-equity firm, it will remain unlevered for ever. If OP does not retire the debt, the company will use the €3 million in cash to buy back some of its equity on the open market. Repurchasing equity also has no transaction costs. The company will generate €1,130,000 of annual earnings before interest and taxes in perpetuity, regardless of its capital structure. The firm immediately pays out all earnings as dividends at the end of each year. OP is subject to a corporate tax rate of 33.33 per cent, and the required rate of return on the firm's unlevered equity is 17 per cent. The personal tax rate on interest income is 36 per cent, and there are no taxes on equity distribution. Assume there are no bankruptcy costs.
What is the value of OP if it chooses to retire all of its debt and become an unlevered firm? (Do not include the euro sign (€). Enter your answer in euros, not millions of euros.)
If the required return on the stock is 12 percent, what is the current share price?
Christensen and Associates is development an asset financing plan. Christensen has $500,000 in current assets of which 15 percent are permanent, and $700,000 in fixed assets.
The stock has a 12% annual dividend and an $80 par value and was sold at $83.20 per share. In addition, flotation costs of $4.80 per share were paid. Calculate the cost of the preferred stock.
What is the standard deviation of a two-asset portfolio if one of the assets has a standard deviation of 0.30, the other asset has a standard deviation of 0.15, and the correlation coefficient between the two assets is 0.15 if ten percent of the p..
Bill is thinking about refinancing his house so he would like to know the payoff on his current loan. Assuming that he just made payment number 130, compute the payoff on Bill's loan?
Gallagher's Supply has sales of $387,000 and costs of $294,500. The depreciation expense is $43,800. Interest paid equals $18,200 and dividends paid equal $6,500. The tax rate is 35 percent. What is the addition to retained earnings?
You have just received a windfall from an investment you made in a friend's business. What is the present value of your windfall? What is the future value of your windfall in three years (on the date of the last payment)?
Assuming you have a choice between depreciation methods, whose advice should you follow?
The company is considering two alternatives to raise the $2 million: (1) sell common stock at $10 per share, or (2) Sell bonds at a 10 percent coupon, each $1,000 bond carrying 50 warrants to buy common stock at $15 per share.
Evaluate the impact interest rates have on bond valuation, other economic factors that affect bond prices and rates of return, and evaluate how bond prices affect our current economic growth.
In its most recent financial statements, company reported $50 million of net income and $810 mil of retained earning. The previous retained earnings were $780 mil. How much dividends was paid to shareholders during the year?
How has the sovereign debt crisis in Europe, and most importantly in Greece, affected Korres's business and financial results?
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