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Flagstaff Enterprises is expected to have free cash flow in the coming year of $8 million, and this free cash flow is expected to grow at a rate of 3% per year thereafter. Flagstaff Enterprises has an equity cost of capital of 15%, a debt cost of capital of 9%, and it is in the 30% corporate tax bracket. The company maintains a .5 debt to equity ratio.
a. What is the pre-tax WACC (or unlevered WACC)?
b. What is the company’s after-tax WACC (levered WACC)?
c. What is the value of the company as a levered firm?
d. What is the present value of the interest tax shield if the unlevered value of the firm is $50 million?
The equipment will be depreciated straight-line to zero over a five-year life. What is the project's initial investment outlay?
A corporate bond currently yields 8.5%. Municipal bonds with the same risk, maturity, and liquidity currently yield 5.5%. At what tax rate would investors be indifferent between the two bonds?
You are the borrower in an FRA where you will pay 5% (annual compounding) for the third year on $1 million. Write down the calculate process. The current forward interest rate for the third year is 5.1% (annual compounding). The 3-year zero rate is 4..
Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of a. 50, which is low by historical standards. b. 25, whic..
Collect and evaluate the data about stock performance of Microsoft Corporation for the last thee years (2014-2016), place in a table.
questiona six-month call options with strike prices of 45 and 50 cost 7 and 4 in that order1 describe the maximum gain
Explain the passive and active equity portfolio management techniques, providing examples where possible. How do the goals differ for portfolio managers for each technique?
The federal reserve, the fdic, the securities investor protection corporation, or the originating house.
Unbiased Expectations Theory Suppose we observe the following rates: the interest rate for the next year is 6% and the one-year interest rate expected one year from now is 9%. What is the annual interest rate on a two-year loan?
You are planning to move next year. You recently told your best friend that you have decided to sell all of your current furniture just prior to moving as you do not want to pay to transport it across the country. Your friend offered to pay you $2,00..
Assuming that orange prices and the variable costs change with inflation, what is the value of the groves?
How does inflation impact returns? In this example, you will see how the Fisher equation can be used to determine the best investment option. Suppose Jim has $2,000 to invest and he is not sure what will happen to inflation over the coming year, but ..
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