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Halifax Inc. is considering a project that requires an initial investment of $10 million and promises to generate an annual after-tax cash flow of $1 million perpetually. This firm is only financed by common shares and debt. In its capital structure it has 40% debt, and it wants to maintain this capital structure in future. It has bonds outstanding with a coupon rate of 8% (with semiannual coupon payment), and these bonds mature in 10 years. The bonds are currently selling at 93% of their par value. Current market risk premium is 6% and risk free rate is 4%. The firm has the same level of systematic risk as the market. The firm's tax rate is 32%. The firm does not have any internal capital for this project. Floatation cost for stocks and bonds are 4% and 2%, respectively, for this firm. Assume governmental tax authority allows firms to deduct floatation costs from taxes by amortizing over 5 years (on a straight line basis). That is, over 5 years the firm may get tax deduction on five equal amounts of the total floatation cost. As a policy the firm always use its weighted average cost of capital to discount its tax deductions for floatation costs. Given the information provided. Should the firm take the project? Complete your calculation and make your conclusion.
You identify a bank CD that pays an interest rate of 0.0500 with the interest being paid quarterly. What will be the value of the investment in two years?
Outstanding debt of Home Depot trades with a yield to maturity of 6%. The tax rate of Home Depot is 40%. What is the effective cost of debt of Home Depot?
Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of the year is $1.50. The dividend is expected to increase at a constant rate of 7 percent each year.
Computation of Net Income and Operating cash Flows and What is the depreciation tax shield
The company's tax rate is 35% Working capital is expected to increase by $3,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the tax effect of selling the old machine?
Evaluate how purchasers of financial futures contracts can offset their position and how their gain or loss is determined.
Prepare a paper comparing and contrasting debt and equity financing. In your paper, discuss the following questions:
An HMO has a point of service (POS) option for its members but will pay only 80 percent of approved charges. If a member goes out of network for a medical procedure with a charge of $2,000 of which $1,2000 is approved how much must the member pay.
If the required return on this stock is 11 percent, what is the current share price?
Nile Riverboat co. Nile Riverboat company a major boat building company highly sensitive to the economy, expects profits next year to be $2,000,000 if the economy is strong, $1,2000,000 if the economy is steady and minus $400,000 if the economy is we..
Determine the appropriate after-tax cost of new debt for Triplin to use in a capital budgeting analysis.
The alternative expectation is that there is a 70% chance that the stock will sell for $10.00 at the end of one year. What is the expected percentage return on this stock, and what is the return variance?
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