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A women's apparel chain with a 10 percent debt-to-assets ratio and a times interest earned of 7.0 is concerned about the possibility of losing its independence in a raid. As part of its defense management elects to sell $100 million of new debt and to repurchase some of its common stock. This will increase the debt-to-assets ratio to 60 percent and will cut times interest earned to 2.0
a. Might this restructuring reduce the company's vulnerability to a takeover? If so, how?
b. Do you think the restructuring will create value? If so, how?
c. If the tax rate is 34 percent, the interest rate is 12 percent, and the debt will be rolled-over as it matures, (i.e., assume the debt is outstanding in perpetuity) estimate the present value of the tax shield created by the restructuring at a discount rate of 14 percent.
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Dizzy Corporation’s 10-year semi annual bond bearing a coupon rate of 12% is currently selling for $950. Given this information, which of the following is the correct valuation equation for this bond? Note: PVIFA(r,t) = [{1-1/(1+r)t}/r] and PVIF(r,t)..
Which one of the following will cause the sustainable growth rate to equal to internal growth rate?
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