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A firm has the following capital structure: £240 million of equity (market value), trading at £2.4 per share, and £160 million of debt. The beta of the firm’s stock is 1.5. The firm’s cost of equity is 10 percent, and the expected return on the market portfolio is 7 percent. There is no tax. Assuming that the firm can borrow at the risk free rate and that both CAPM (Capital Asset Pricing Model) and the Modigliani-Miller theorem hold, answer the following questions. i) How many shares of the firm are outstanding? ii) What should be the risk free rate? What is the WACC of the firm? iii) What is the WACC of the firm? iv) Suppose the firm changes its capital structure so that its debt increases to £200 million, and the equity decreases by £40 million. What should be the firm’s cost of equity after the change?
Recent sales of some real estate-record profits make it possible for manufacturer to set aside $1,200,000 in fund to be used for modernization and remodeling.
At the start of November, Penco Refinery had Work in Process inventory consisting of 4,700 units that were 80 percent complete with respect to materials and 60 percent complete with respect to conversion costs. Calculate the cost per equivalent unit ..
Kennedy's has the following estimated quarterly sales for next year. Projected first quarter sales $11,400, second quarter $13,200, third quarter $15,800 & fourth quarter $12,700. The accounts receivable period is 70 days. What is the expected accoun..
What is the expected rate of return on National Healthcare’s stock if the last dividend per share (D0) was $2.3148,
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Find the present value of $4,000 under each of the following rates and periods.
Youngston Company (a Utah employer) wants to give a holiday bonus check of $750 to each employee. Since it wants the check amount to be $750, it will need to gross-up the amount of the bonus. Calculate the withholding taxes and the gross amount of th..
What options do firms have when caught in conflicts between home country and host country laws?
If you owned your own company and wanted to expand, would you choose to get your financing through debt, equity, or both? Why? What advantages or disadvantages do each offer?
The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer, purchased just 2 years ago, is being depreciated on a straight-line basis and has 6 years of remaining life. Gilbert's ..
The bonds of a company are convertible into shares of the firm's common stock at $40 per share. The current price of the common stock is $35 per share. The bonds have a $1,000 par value and currently sell for $900 apiece. What is the conversion ratio..
What is the earnings per share, or EPS, figure? What is the dividends per share figure?
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