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Monroe Inc. is an all-equity firm with 500,000 shares outstanding. It has $2,000,000 of EBIT, and EBIT is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) equal dividends per share (DPS), and its tax rate is 40%. The company is considering issuing $4,250,000 of 9.00% bonds and using the proceeds to repurchase stock. The risk-free rate is 4.5%, the market risk premium is 5.0%, and the firm's beta is currently 0.90. However, the CFO believes the beta would rise to 1.10 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: P0 = EPS/rs because EPS = DPS.) $21.37 $28.49 $30.49 $34.76 $28.78
You are operating an old machine that is expected to produce a cash inflow of $5,000 in each of the next 3 years before it fails.
After-tax cash flow equals:
Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.3 million. The equipment will be depreciated straight line over 6 years to a value of zero, but in fact it can be sold after 6 years fo..
Current sales are $360,000, current assets $80,000, accounts payable $15,000, accruals $5,000, net profit margin of 5% with a 50% dividend payout. If I expect sales to increase by 20% and no fixed assets are needed, what is my external funds requi..
A 20-year bond pays 6% on a face value of $1,000. If similar bonds are currently yielding 4.5%, what is the market value of the bond? Use annual analysis
Firms that achieve higher growth rates without seeking external financing
Is there a relationship between compensation and higher levels of employee performance? Please explain "yes" or "no" providing 3 reasons to support your position. How does organizational market position influence compensation philosophy?
An asset has had an arithmetic return of 10.8 percent and a geometric return of 8.8 percent over the last 86 years. What return would you estimate for this asset over the next 7 years? 21 years? 28 years?
Company A has a price of $30 and will issue a dividend of $2.10 next year. It has a beta of 2, the risk-free rate is 3%, and the market risk premium is estimated to be 4%. Estimate the equity cost of capital for Company A. Under the Constant Dividend..
Project A costs $67,775, its expected net cash inflows are $10,000 per year for 10 years, and its WACC is 8%. What is the project's Net Present Value?
During 2015, Spartan Systems reported total sales of $300,000, at a price of $20 and per unit variable expenses of $12, for the sales of their single product. Improve the product quality which will increase direct material cost per unit by $2 ii. Inv..
A proposed new investment has projected sales of $837,000. Variable costs are 57 percent of sales, and fixed costs are $187,610; depreciation is $97,000. Assume a tax rate of 35 percent. What is the projected net income?
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