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Agency Costs Tom Scott is the owner, president, and primary salesperson for Scott Manu- facturing. Because of this, the companyâ??s profits are driven by the amount of work Tom does. If he works 40 hours each week, the companyâ??s EBIT will be $450,000 per year, and if he works a 50-hour week, the companyâ??s EBIT will be $550,000 per year. The company is currently worth $2.7 million. The company needs a cash infusion of $1.5 million, and it can issue equity or issue debt with an interest rate of 9 percent. Assume there are no corporate taxes.
a. What are the cash flows to Tom under each scenario?
b. Under which form of financing is Tom likely to work harder?
c. What specific new costs will occur with each form of financing?
Incremental expenses of the system include two new operators with annual salaries of $40,000 each and operating expenses of $12,000 per year. The firms' tax rate is 34 percent.
Would this recipient be as well off under the housing voucher scheme as he would be with a cash transfer of equal value?
Use the ATAR model to determine the potential market share for a product concept assuming that it will achieve a trial rate of 25%, 80% awareness in the market, and 65% availability in stores.
Calculate the stock's expected return and standard deviation
The manager notes that only the $21,000 payment of the 27th has cleared the bank. What is the company's ledger balance and available balance with its bank?
Zhdanov Inc. forecasts that its free cash flow in the next two years will be, Year FCF t=1 -$10 million t=2 $20 million After Year 2, FCF is expected to grow at a constant rate of 4% forever.
You place an order for 1,600 units of Good X at a unit price of $53. The supplier offers terms of 2/30, net 50.
publicly owned firms sometimes make decisions to maximize their own welfare as opposed to that of stockholders. Does such behavior create problems in using value maximization as a basis for examining managerial decision making?
Fixed expenses for each new edition of the book, Calculate the contribution margin for each copy of the book?
Tano issues bonds with a par value of $180,000 on January 1, 2008. The bonds' yearly contract rate is 8%, & interest is paid semi-annually on June 30 and December 31.
Suppose an investment with the following returns over four years. Determine the compound annual growth rate for this investment over the 4 years?
Your client chooses to invest $50,000 of her portfolio in your equity fund and $150,000 in a T-bill money market fund. What is the reward-to-volatility ratio for the equity fund?
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