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An unlevered firm has expected earnings of $2,401 and a market value of equity of $19,600. The firm is planning to issue $4,000 of debt at 6 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?
Indicate how a bank's core deposits differ from its wholesale liabilities in terms of interest elasticity. What factors are relatively more important for attracting and retaining core deposits as compared with purchased funds?
What is the Estimate at Completion? What is the significance of the three methods of forecasting EAC? What is the difference between Estimate at Completion and Budget at Completion (BAC)? Under what circumstances will they be equal?
Your Company is analyzing purchase of a machine costing $5,900 today. The investment promises to add $18,500 to sales one year from today, $14,500 two years from today and $18,000 three years from today. Incremental cash costs should consume 75% of t..
Consider an asset that costs $511,000 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $168,000. If the relevant tax rate is 34..
Ogden Mear did an excellent job saving for retirement. He was able to save $1,000,000 in an account that pays 5 percent per year. His plan was to eventually withdraw all his money by paying himself in equal instalments every six months for the next 2..
Continuing with the RJR situation - an LBO means that the take-over company borrows an enormous amount of money (often by issuing speculative, or "junk" bonds) and uses those borrowed funds to buy-back the common stock. After the take-over, which of ..
With an unfunded pension liability of $581 million that must be paid in 20 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 7.4 percent, what is t..
Describe what a Lean enterprise emphasizes. Define Waste, including components and relationship to the customer. Describe value-added including what it must do and the relationship to the customer and standard of performance. Describe where and when ..
A call option on an asset has a delta of 0.6. A trader has sold 1,000 options and wants to create a delta-neutral position. Should the trader take a long or short position in the asset? How many units of the asset should be bought or sold?
Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $287,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years..
Explain why management may tend to pursue goals other than shareholder wealth maximization. Explain what is meant by agency relationships and agency costs.
Your firm needs to raise $100 million in funds. You can borrow short-term at a spread of 1% over LIBOR. Alternatively, you can issue 10-year, fixed-rate bonds at a spread of 2.50% over 10-year treasuries, which currently yield 7.60%. Current 10-year ..
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