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Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 6%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $12.113 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 5%, and the risk-free rate is 5%. BEA is considering increasing its debt level to a capital structure with 45% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 9%. BEA has a beta of 0.9.
What is BEA's unlevered beta before restructuring? Use market value D/S (which is the same as wd/ws) when unlevering. Round your answer to two decimal places.
What are BEA's new beta after releveraging and cost of equity if it has 45% debt? Round your answers to two decimal places. Beta Cost of equity % What is BEA's WACC after releveraging? Round your answer to two decimal places. %
What is the total value of the firm with 45 % debt? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places. $ million.
Discuss the difference between operating income, non operating income, and other comprehensive income. Which of them is most important for evaluating the long-run profitability of a firm?
Suppose you purchase 1,050 shares of stock at $76 per share with an initial cash investment of $30,000. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate. Calculate your return on investment one year later if t..
The risk-free interest rate is 10% per year with continuous compounding and the dividend yield on a stock index is 4% per year. The index is standing at 400, and the futures price for a contract deliverable in four months is 405. What should an arbit..
A firm declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet the stock declined by 3% the day of the announcement. Another firm declared a dividend of $2 per share, which was the same as the prior year, and its st..
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 12% of its $100 par value. Preferred stock of this type currently yields 7%. Assume dividends are paid annually. What is the value of Rolen's preferred stock?
You have just arranged for a $1,660,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 6.6 percent, and it calls for monthly payments over the next 20 years. However, the loan has an eight-year balloon payment, ..
What institutions are the primary suppliers of business term loans? Define the following: A conditional sales contract and A chattel mortgage.
Consider two mutually exclusive projects with the following cash flows: Project S is a 4 year project with initial (time 0) cash outflow of 3000 and time 1 through 4 cash inflows of 1500, 1200, 800 and 300 respectively. Project L is a 4 year project ..
Summarized the advantages of the international trade agreement selected and summarized the disadvantages of the international trade agreement selected.
Analyze the Return on Equity (ROE) for the last 2 years using the DuPont method. - Develop a comparison of your three companies.
Financial analysts have developed two performance measures: Market Value Added (MVA) and Economic Value Added (EVA). Discuss and explain both. Which is a better representative of the firm’s performance, and why?
A) Assume the following: Euro spot = Euro 0.8115/$1.00; SwF spot = SwF 1.4260/$1.00; and Euro/SF spot = Euro 0.5625/SwF 1.00. Assume you have $1,000,000 available for arbitrage transactions. Show how you can make arbitrage profits at these spot rates..
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