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Zombie Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 40% debt. Currently, there are 1,000 shares outstanding and the price per share is $70. EBIT is expected to remain at $7,000 per year forever. The interest rate on new debt is 7% and there are no taxes.
a) a, Ms. Spears, a shareholder of the firm owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100%?
b) b, What will Ms. Spears cash flow be under the proposed capital structure of the firm? Assuming that she keeps all 100 of her shares.
c) c, Suppose Zombie does convert, but Ms. Spears prefers the current all-equity capital structure. Show how she could unlever her shares of stocks to recreate the original capital structure.
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following information.
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Subsidiary A of Mega Corporation has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000.
If I borrow 60,000 from bank at 10% interest over the seven-year life of loan, what equal annual payments should be made to discharge the loan plus pay the bank its required rate of interest. Annual payments_____.
Computation of savings with Interest rate swaps on the borrowings - What range of interest rates would make this swap attractive to both parties?
show that in this example VaR does not satisfy the subadditivity condition whereas expected shortfall does.
Return on equity to be 13.8 percent. Sales were $979,000, the total debt ratio was 0.42, and total debt was $548,000. What is the return on assets?
Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $18,250, and the project is expected to yield aafter-tax cash inflows of $4,000 per year for 7 years. The firm has a 10% cost..
If new technology permits electronic voting to run more smoothly, then, If there is peace in the Middle East that makes oil sources more secure and much less expensive, then
Osbourne Corporation has bonds on the market with 16.0 years to maturity, a YTM of 10.5 percent, and a current price of $943. The bonds make semiannual payments. What must the coupon rate be on the bonds?
Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $90, $200, and $108, respectively. If Able undergoes a 2-for-4 reverse stock split. What is the new divisor?
Because of the holidays, no salary accrual was made for the last week of the year. Salaries for the last week totaled $3.5 million and were paid on January 4, 2008.
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