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Kohwe Corporation plans to issue equity to raise $50 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10 million each year. Kohwe currently has 5 million shares outstanding, and it has no other assets or opportunities. Suppose the appropriate discount rate for Kohwe’s future free cash flows is 8%, and the only capital market imperfections are corporate taxes and financial distress costs. a) What is the NPV of Kohwe’s investment? b) What is Kohwe’s share price today? Suppose Kohwe borrows the $50 million instead. The firm will pay interest only on this loan each year, and it will maintain an outstanding balance of $50 million on the loan. Suppose that Kohwe’s corporate tax rate is 40%, and expected free cash flows are still $10 million each year. c) What is Kohwe’s share price today if the investment is financed with debt? Now suppose that with leverage, Kohwe’s expected free cash flows will decline to $9 million per year due to reduced sales and other financial distress costs. Assume that the appropriate discount rate for Kohwe’s future free cash flows is still 8%. d) What is Kohwe’s share price today given the financial distress costs of leverage?
Can someone help me find the following: Net income available to common stockholders and Common stockholders’ equity? Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 year..
You are planning to leave for the mountains and be a survivalist in ten years. You will be able to deposit $1,000 per year at the end of each of the first five years and $2,000 per year for the following five years. You start your savings plan today ..
The Poseidon Swim Company produces swim trunks. The average selling price for one of their swim trunks is $79.00. The variable cost per unit is $24.58, Poseidon Swim has average fixed costs per year of $9194. Assume that current level of sales is 451..
Shares of MegaKimmel, a producer and marketer of caraway seeds, is selling for $50. A European-style call option with a strike price of $55 and a maturity of three months is selling at $2. Assume the continuously compounding risk-free annual rate is ..
Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength. A stock with a beta equal to -1.0 has zero systematic (or market) risk.
You must evaluate a proposed spectrometer for the R&D department. The base price is $270,000, and it would cost another $40,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold aft..
Which of the following is true concerning cash dividend payments by US corporations
A share of stock with a beta of .70 now sells for $60. Investors expect the stock to pay a year-end dividend of $4. The T-bill rate is 5%, and the market risk premium is 8%. At what price will the stock reach an “equilibrium” at which it is perceived..
Suppose you invest $4,500 in Stock A and $5,500 in Stock B. The variance of Stock A is 10%, the variance of Stock B is 20%, and the covariance between the two stocks is 1.87%. What is the standard deviation of your portfolio (in percent)?
Given the following information for the stock of Foster Company, calculate the risk premium on its common stock.
Suppose you observe the following situation: Security Beta Expected Return Peat Co. 1.20 11.2 Re-Peat Co. 1.00 9.6 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?
A SELLER would be responsible for providing all of these items EXCEPT
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