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Consider a firm with an EBIT of $10,500,000. The firm finances its assets with $50,000,000 debt (costing 6.5 percent) and 10,000,000 shares of stock selling at $10.00 per share. The firm is considering increasing its debt by $25,000,000, using the proceeds to buy back shares of stock. The firm is in the 40 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $10,500,000. Calculate the change in the firm’s EPS from this change in capital structure.
Consider the following information: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .17 .358 .458 .338 Good .43 .128 .108 .178 Poor .33 .018 .028 ?.062 Bust .07 ?.118 ?.258 ?.098 What is t..
Jacqueline Strauss, whose 25 is committed $3000 per year for her retirement fund and assumes shell retire at 65. How much will she have accumulated when she turned 65 if she invests in equities and earns 8% on average?
You are evaluating a project for a small manufacturing firm. The firm has provided the following information: the initial cost of the project is $2,500 for equipment purchase; the CCA rate is 10 percent; tax rate is 25 percent; and the pre-tax cash f..
All else constant, which of the following will decrease the after-tax of debt for a firm?
Sims Corp. will buy back 900 of its 2500 shares outstanding. The return on equity before the buy-back is 14%. The debt-to-equity ratio before the buy-back is 1. Also, the company plans to keep a constant debt level, with an interest rate of 3%. Assum..
1. if a firm raises capital by selling new bonds it would be called the issuing firm and the coupon rate is usually set
If an alternative has an advance payment of $100,000 upon contract award and then quarterly payments of $20,000 for the next 3 years, what would the cash flow diagram look like?
Purple Dalia, Inc. has the following balance sheet statement items: current liabilities of $605,742; net fixed and other assets of $1,990,510; total assets of $3,013,480; and long-term debt of $728,980. What is the amount of the firm’s total stockhol..
Terrence has an investment that will pay $250 to him next year and increase that amount by 1.25 percent annually. The payments are expected to go on indefinitely and the discount rate is 6.5 percent, compounded annually. What is the value of this inv..
A stock is expected to pay a dividend of $2.40 per share in 1 months and in 4 months. The current stock price is $51, and the risk-free interest rate is 7% per annum with continuous compounding for all maturities. An investor has just taken a long po..
Identify the key criteria and considerations that need to be taken into account in evaluating BFSI entry in the proposed foreign markets.
Please define and describe in your own words the benefits and disadvantage of using payback period, NPV and IRR as means for evaluating project. Please explain how mutually exclusive projects influence these analysis tools.
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