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Suppose your company needs to raise $35.4 million and you want to issue 24-year bonds for this purpose. Assume the required return on your bond issue will be 7.9 percent, and you’re evaluating two issue alternatives: a 7.9 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent. How many of the coupon bonds would you need to issue to raise the $35.4 million? How many of the zeroes would you need to issue? In 24 years, what will your company’s repayment be if you issue the coupon bonds? What if you issue the zeroes?
Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm’s aftertax cash outflows for the first year under the two different scenarios.
Initial investment: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $20,000; it was being depreciated under..
Night Hawk Co. issued 17-year bonds two years ago at a coupon rate of 10.1 percent. The bonds make semiannual payments. If these bonds currently sell for 97 percent of par value, what is the YTM? (Do not include the percent sign (%). Enter rounded an..
Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?
Gilbert is considering purchasing the Side Steamer 3000 which cost $12,000 and has an estimated useful life of 6 years with an estimate salvage value of $1,500. This steamer falls into the NARC 5-year class with rates as 20.00%, 32.00%, 19.20%, 11.52..
LD Electronics Co. is growing quickly. Dividends are expected to grow at a rate of 20 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the equity cost of capital is 11 percent, and the company ..
P/E ratio is used regularly as a valuation metric and you will often hear it discussed in the business news media (i.e. CNBC, Bloomberg, Fox Business, etc). You have just had the opportunity to apply P/E in a relatively easy assignment. Based on this..
Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 26,000 shares of stock. The debt and equity option would consist of 15,000 shares of stock plus $250,000 of debt wi..
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. How much free cash would HGC g..
Upon graduating from college, you make an annual salary of $31,546. You set a goal to double it in the future. If your salary increases at an average annual rate of 6.48 percent, how long will it take you to reach your goal?
question 1 prepare a short essay for each of the subsequent questions. where possible illustrate with an appropriate
Firm R currently has $1,000,000 of debt outstanding with a before tax annual coupon of 5%, a constant EBIT of $2,100,000 and 500,000 shares outstanding at a market price of $20.00. What is the estimated value of the firm after the new debt issue? Wha..
The Nelson Company has 1,740,000 in current assets and 600,000 in current liabilities. Its initial inventory level 420,000 and it will raise funds as additional notes payable and use them to increase inventory. What will be the firm's quick ratio aft..
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