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Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies as separate entities are $20 million and $10 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $500,000 per year in perpetuity. Velcro Saddles can either pay $14 million cash for Pogo or offer Pogo a 50 percent holding in Velcro Saddles. The opportunity cost of capital is 10 percent.
a. What is the gain from merger?b. What is the cost of the cash offer?c. What is the cost of the stock alternative?d. What is the NPV of the acquisition under the cash offer?e. What is its NPV under the stock offer?
Assume England raised its corporate tax rate by 1 percentage point from 40% to 41%. How would this raise affect the economics of U.S.-U.K. foreign expansion project?
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Calculate the Revised Portfolio beta riskiest beta replaced by risky fewer betas and who believes the economy is slowing down
A corporation is attempting to raise $5,000,000 in new equity with a rights offering. The subscription price will be $40 each share. The stock currently sells for $50 each share and there are 250,000 shares were outstanding.
The upgrade will cost the firm a combined total of $23,000,000 up front, but will lower operating expenses by 4,400,000 per year forever. The company is facing a 38 percent tax rate.
Explain, using examples, the differences between equity financing and debt financing. Name two types of long-term debt financing and list the relative advantages and disadvantages (to the borrower) of each.
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Brushy Mountain Mining Corporation's ore reserves are being depleted, so its sales are falling. Also, its pit is getting deeper each year, so its costs are increasing.
During the last five years you owned two stocks that had the following yearly rates of return, calculate the arithmetic annual rate of return for each stock.
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Assume you own the 8% October 2008 treasury bond and it is expected that the market interest rate will increase from 8% to 9% in the next three months.
What are brand equity and customer equity? What are the advantages and disadvantages of each?
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