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EBIT was $55 million in 2016, and is expected to remain constant for 2017. The firm is all equity financed, and there are 15 million shares outstanding. The corporate tax rate is 37.5%, the risk-free rate is 3.5% and the market risk premium is 4%. The firm’s beta was estimated at 1.25 by the investment bankers who have also supplied the following estimates of debt costs for different capital structures: At 20 percent debt, the cost of debt would be 6.3%; at 30 percent debt, the cost would be 7.5%; at 40 percent debt, the cost would be 8.7%; at 50 percent debt, the cost would be 10%.
Calculate BEP, ROI, ROE and TIE ratios for the fictitious firm with no debt and for the firm with 50 percent debt financing. Interpret your findings.
Blue Diamond preferred stock is currently selling for $38.55. The company pays $6.81 in annual dividends on this preferred stock. What rate of return will the investor expect to receive on this stock if the stock is purchased today? Round the answer ..
Holding all other variables constant, payment per period for an annuity due will be higher than an ordinary annuity. As the discount rate increases, the present value of future cash flows increases.
With a Series EE bond, you pay a particular amount today of, say, $25, and the bond accrues interest over the time you hold it. In early 2012, the U.S. In 2022, instead of cashing the bond in for its then current value, you decide to hold the bond un..
Fairfax Pizza sells pizza in Northern Virginia and is evaluating the stadium project, which would involve selling pizza in the baseball stadium for 2 years, starting today. Based on the following information, what is the net present value of the stad..
A company has 1,000 shareholders who own a total of one million shares of its common stock currently selling at $7 per share. The company earned $11,000,000 after taxes. The annual dividend is $.80 per share. The firm has assets of $137,000,000 and l..
A supplier grants your firm credit terms of 3/10, net 50. What is the effective annual rate of the discount if the firm purchases $1,000 worth of merchandise? What is the incremental cash inflow from the proposed credit policy switch?
Find the violations of APA style in Research suggests that attributions have an effect on relationship satiSfaction over time (Wilson, 1987; Anderson and Camby, 1992).
Hardin-Gehr Corporation (HGC) began operations 5 years ago as a small firm serving customers in the Detroit area. However, its reputation and market area grew quickly. Today HGC has customers all over the United States. Despite its broad customer bas..
The dividend for Weaver, Inc., is expected to grow at 21 percent for the next 4 years before leveling off at a 5.8 percent rate indefinitely. If the firm just paid a dividend of $1.2 and you require a return of 14 percent on the stock, what is the mo..
Barbara is considering investing in a stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Wha..
Use a binomial tree to value an American call option on copper with an exercise price of $0.60 and a time to maturity of 1 year. Divide the life of the option into four 3-month periods for the purposes of constructing the tree.
Future Value of an Annuity for Various Compounding Periods. Find the future values of the following ordinary annuities: FV of $200 paid each 6 months for 8 years at a nominal rate of 12%, compounded semiannually. Round your answer to the nearest cent..
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