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A company has no debt financing and a market value of $10 million and an equity beta of 1.0. The cost of equity for the unlevered company is 12%. The company is considering a permanent change in its capital structure to be 30% debt financed based on its unlevered value (i.e. $3 million of debt financing). The debt has no default risk and the cost of debt is 4%. The corporate tax rate is 25%. There are no personal taxes. If the company permanently changes to the new capital structure, what will be the new value of the firm?
Assume a firm has earnings before depreciation and taxes of $660,000 and no depreciation. It is in a 30 percent tax bracket.
Felicia & Fred are considering the introduction of a new product line of jewelry featuring crystals imported from the Czech Republic. The manufacturing plant offers crystals in all colors, sizes, and shapes cut to the design specifications of their c..
The last section on Financial Projections should show a 5 year projection of expected revenues for Apple Inc. In addition, you should present some type of idea when BE (break-even) will take place. Companies that introduce new products generally do n..
1. explain why the present value of a cash flow stream and the asset associated therewith fluctuate in value with the
Denote the observed return by . Is serially correlated? If yes, calculate the first three lags of autocorrelations of .
What is causing Hal’s cash flow problems? Develop a plan to address the problems.
If the Fed reduces reserves by selling $5 million worth of bonds to the banks, what will the T-account of the banking system look like when the banking system is in equilibrium? What will have happened to the level of checkable deposits?
The D.L. Jones Co. currently has the following capital amounts. $400,000 of common stock, $500,000 of long-term debt, and $50,000 of preferred stock. Our best estimate is that this is also the target capital structure. Determine the WACC in each of t..
Glorious Hutches has completed their first year of business. John Miller, the owner, has asked your company to calculate Annual Profits. Below are the specifics of the business operation for Year 1. Four employees work 8 hours/day for 5 days/week. Ov..
Ignoring which of the following will cause the NPV of a project to be underestimated? Which one of the following is an example of a real option for a restaurant? Which one of condition indicates a highest level of risk of return? Financial leverage i..
Capital City Brewery (CCB) brews three different types of beers from their brewpub and restaurant in downtown Springfield. Cost of Capital -- You get to determine it, it is not given. Each alternative may have different risk profiles. Consider the ri..
Todd Mountain Development Corporation is expected to pay a dividend of $3 in the upcoming year.
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