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Please show formulas and calculations and not just results and numbers, and explain rationale for answers. Whenever applicable, interest is compounded annually and payments occur at the end of the period. Face value for bonds is $1000.
Pershing has a tax rate of 30% and an EBIT of $50 million. The unlevered cost of capital is 14%.
1. What is the value of the unlevered firm? What is the cost of equity for the unlevered firm? What is the WACC of the unlevered firm?
2. Now suppose that Pershing issues $90 million in debt to buy back stock. The cost of debt is 8%. For the levered firm, find the value of the levered firm, the cost of equity and the WACC.
Consider you are a valuation analyst for Goodyear Tire and your company is planning to acquire RGC Tire. RGC’s stock price dropped by 78% YoY and they missed their dividend payment for each of the prior three quarters. Describe why the free cash flow..
Suppose at 90 days before expiration, the stock is at 28. Find the value of the chooser option at expiration if the stock price ends up at 50 and at 30.
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What does it mean if a company has a Capital Spending - 5 yr growth rate ratio of 24.22 while the industry and sector ratios are 12.72 and 9.18? How are they performing against the industry and sector? Why are they performing as such?
Volbeat Corp. shows the following information on its 2015 income statement: sales=$267,000; costs=$148,000; other expenses= $8,200; depreciation expense= $17,600; interest expense= $12,400; taxes = $32,620; What is the 2015 operating cash flow? What ..
what is the maximum amount Pierre should be willing to pay for this bond?
Discuss any benefits you can think of for a company to Cross-list its equity shares on more than one national exchange, and To source new equity capital from foreign investors as well as domestic investors.
When a person dies, the gross estate is:
Which of the following is not true when ranking proposals using zero-base budgeting?
Your company has spent $500,000 on research to develop a new computer game. The firm Is planning to spend $100,000 on a machine to produce the new game. The firm has a tax rate of 35 percent, an opportunity cost of capital of 10 percent, and it expec..
Security F has an expected return of 10 percent and a standard deviation of 26 percent per year. Security G has an expected return of 17 percent and a standard deviation of 58 percent per year. We form a portfolio composed of 30 percent of security F..
The Delta Fish Hatchery factors its accounts receivables immediately at a discount rate of 1.8 percent. The average collection period is 39 days. Assume all accounts are collected in full. What is the effective annual interest rate on this arrangemen..
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