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An all-equity firm is subject to a 30% tax rate. Its total market value is initially $3,500,000, and there and 175,000 shares outstanding. The firm announces a program to issue $1 million worth of bonds at 10% interest and to use the proceeds to buy back common stock.
a. What is the value of the tax shield that the firm acquires through the bond issue?
b. According to M&M, what is the likely increase in market value per share of the firm after the announcement (assuming efficient markets)?
c. How many shares will the company be able to repurchase?
Company A is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $219,000, a 4-year expected life, and after-tax cash flows (labour savings and depreciation) of ..
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Waller Co. (WAG) paid a $0.164 dividend per share in 2003, which grew to $0.420 in 2012. This growth is expected to continue. What is the value of this stock at the beginning of 2013 when the required return is 14.0 percent? (Round the growth rate, g..
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $220,000, a 3-year expected life, and after-tax cash flows (labor savings and depre..
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1. suppose the spot and six-month forward rates on the denmark krone are kr 4.18 and kr. 4.30 respectively. the annual
Trent receives a check for $20,000 from his parents for his 20th birthday. He decides to deposit this money into an account earning a 9% interest rate compounded monthly, forever.
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