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Assume that a company has $10 million in assets (where the market value of the assets is equal to the book value of the assets) and no debt. The company's marginal tax rate is 35% and has 500,000 shares outstanding. The company's earnings before interest and taxes (EBIT) is $3.88 million. The firm's stock price is $27 per share and the cost of equity is 11%. The company is thinking of issuing bonds and simultaneously repurchasing a portion of its stock. If the company changes its capital structure from no debt to 25% debt based on market values, the firm's cost of equity will increase to 13% because of the increased risk. The bonds can be sold at a cost of 9%. The firm's earnings are not expected to grow over time. All of its earnings will be paid out as dividends. Answer the following questions: a. What impact will this utilization of this debt have on the value of the company? b. What's going to be the company's EPS after the recapitalization? c. What's going to be the company's new stock price? d. The $3.88 million EBIT discussed above is determined from this probability distribution: Probability EBIT ($) 0.05 - 1 million 0.25 2.3 million 0.4 4 million 0.25 5.8 million 0.05 6.1 million What's the times interest earned ratio at each probability level?
Ninja Co. issued 15-year bonds a year ago at a coupon rate of 8.1 percent. The bonds make semiannual payments. If the YTM on these bonds is 6.4 percent, what is the current bond price?
how might a sudden increase in peoples expectations of future real estate prices affect interest
the cost of not taking the discount on trade credit of 210 net 30 is equal to what
A stock has an expected return of 14 percent, its beta is 1.20, and the risk-free rate is 5.8 percent. What must the expected return on the market be?
Rattner Robotics had five million in operating expenses. The company had net depreciation expenses of 1 million and interest expenses of one million, its corporate tax rate was 40 percent.
State Street Corporation will pay a dividend on common stock of $4.00 per share at the end of the year. The required return on common stock is 11 percent.
A portfolio is made up of 75 percent of stock 1, and 25 percent of stock 2. Stock 1 has a variance of .08, and stock two has a variance of .035. The covariance between the stocks is -.001.
A firm has a current ratio of 2.4, a quick ratio of .6, and current liabilities of $800. What is the value of the inventory account?
Assuming that there is a perfect market in St James' Ltd's shares, and that the market uses a dividend valuation model, show how the market value of the shares has been affected by the Board's decision.
Natsam Corporation has $250 million of excess cash. The firm has no debt and 500 million shares outstanding with a current market price of $15 per share. Natsamâ's board has decided to payout this cash as a one-time dividend.
Please critique the following article with the literature review, methodology and state key findings.
The duration of a 10-year bond is 8.75 and the duration of a 2-year bond is 1.25. Both bonds are priced at par. How many of the 2-year bonds would you need to own to have the same interest rate sensitivity as one 10-year bond?
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