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A company needs $35,943,750 to finance a major project in the company. The company expects that next year’s earnings from current operations and the additional earnings from the new project will be a total of $45,650,000. The company currently has 5,075,000 shares outstanding, with a price of $17.75 per share. The company’s management is assuming that any the additional shares issued to finance the project will not affect the market price of the company’s common stock. Calculate the following: If the $35,943,750 needed for the project is raised by selling new shares, what will the forecast for next year’s earnings per share (EPS) be? If the $35,943,750 needed for the project is raised by selling new shares, what will the firm’s price earnings ratio (PE ratio) be? If the $35,943,750 needed for the project is raised by issuing new debt, what will the forecast for next year’s earnings per share be? (Assume that there is no “tax shield effect” with issuing corporate debt.) If the $35,943,750 needed for the project is raised by issuing new debt, what will the firm’s PE ratio be?
The analysts figure a 12 percent cost of equity capital, a 10 percent cost of debt capital, a 20 percent salvage value (of the initial outlay), financing by a bond sale at 10 percent with principal due at the end of the twentieth year, and constant f..
Jeremy Denham plans to save $6,200 every year for the next eight years, starting today. At the end of eight years, Jeremy will turn 30 years old and plans to use his savings toward the down payment on a house. If his investment in a mutual fund will ..
People bought four times as many movie posters as baseball cards. How many of each did Brian sell?
You purchased one of AAA Corp.’s 9%, 15-year convertible bonds at its $1,000 par value a year ago when the company’s common stock was selling for $25. Similar bonds without a conversion feature returned 10% at the time. Calculate the total return on ..
Why have mortgages considered an attractive investment for lender? Discuss the main differences, preferred stocks, and bonds.
A local finance company quotes an interest rate of 17 percent on one-year loans. So, if you borrow $31,000, the interest for the year will be $5,270. What interest rate would legally have to be quoted? What is the effective annual rate?
The primary mechanisms for reimbursement for health care include: Reimbursement based on a set rate per day Pays a predetermined amount per member per month Provides financial reimbursement for losses A form of prospective payment CMS uses to pay hos..
The unlevered return on equity for a company is 6.55%, the company keeps a constant debt policy and the debt-to-equity ratio is 0.7. The beta of debt is equal to 0.1 and the risk free rate is 3.25%. Knowing that the market risk premium is 4.50% and t..
A portfolio manager in charge of a portfolio worth $8 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below $7 mill..
Why is the way this expenditure is accounted for important? Who is harmed by incorrect accounting?
A perpetuity has a payment of 100 at time t = 1. Find the present value of the perpetuity.
what is the total return from your investment (in percentage terms)?
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