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Desert Rose, Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 20 percent debt. Currently, there are 11,000 shares outstanding, and the price per share is $58. EBIT is expected to remain at $24,200 per year forever. The interest rate on new debt is 7.5 percent, and there are no taxes.
part a: Allison, a shareholder of the firm, owns 200 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent?
part b: What will Allison’s cash flow be under the proposed capital structure of the firm? Assume she keeps all 200 of her shares
part c: Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now?
Assume that in January 2013, the average house price in a particular area was $285,400. In January 2002, the average price was $202,300. What was the annual increase in selling price?
Constant growth You are considering an investment in Keller Corp's stock, which is expected to pay a dividend of $2.50 a share at the end of the year (D1 = $2.50) has a beta of 0.9. The risk-free rate is 2.9%, and the market risk premium is 4.0%. Ass..
Fly Away, Inc., has balance sheet equity of $5.6 million. At the same time, the income statement shows net income of $823,200. The company paid dividends of $452,760 and has 200,000 shares of stock outstanding. If the benchmark PE ratio is 23, what i..
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Interest rates 2% lower in the U.S. than in foreign country. The foreign currency exhibits 3% forward discount. Who has covered interest arbitrage opportunity?
Carow Industries has just started to deposit $300 at the end of each month into its employees' retire- ment fund (i.e., the first deposit will take place one month from now). These deposits will continue for each em- ployee until they retire. how mu..
If the rate of inflation is 4.5% what nominal interest rate is necessary for you to earn 3.6% real interest rate on your? investment?
Verify that VK (T, T) equals the payout of a forward contract with delivery price K. - Suppose at time t0 you go short a forward contract with maturity .
If an average share of stock is expected to yield a return of 7.2% and comparable Treasury bonds yield a return of 3.6%, what is the market risk premium?
Shinoda Corp. has 6 percent coupon bonds making annual payments with a YTM of 5.4 percent. The current yield on these bonds is 5.75 percent. How many years do these bonds have left until they mature?
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