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Suppose Fox Wood Corp. (FWC) has perpetual earnings before interest and taxes (EBIT) of $10 million per year. Fox Wood’s unlevered cost of equity is 12%. FWC is subject to a corporate tax rate of 40%. It has $50 million in permanent debt in its capital structure, and the (pre-tax) cost of debt is 7% (EAR).
What is the after-tax WACC for Fox Wood Corp?
You are considering setting up a firm to produce widgets. The cost of the project is $30 today. The demand for widgets is uncertain. It can be either high or low with equal probability. When the demand is high cash flows in t = 1 are $66 and when the..
If you know that investors require a 15 percent pretax rate of return on this preferred stock, what is the current market value of this preferred stock?
Suppose that a person won the Florida lottery and was offered a choice of two prizes: (1) $500,000 or (2) a coin-toss gamble in which he or she would get $1 million if a head were flipped and zero if a tail. Construct an equal Construct an equal-weig..
The Lion Corp.(LC) issues a 30 year callable bond which is also convertible to 50 shares of LC common stock. Explain why LC would issue a bond with these features as opposed to just issuing a bond without such options. As a bondholder, would you nec..
A company has total assets of $120,000, current assets of $80,000, total liabilities of $50,000, and current liabilities of $25,000. What is the current ratio?
A bond has a $1,000 par value and an 8 percent coupon rate. The bond has four years remaining to maturity and a 10 percent yield to maturity. This bond's modified duration is ____ years.
Which one of the following will tend to decrease the length of time a company will extend credit?
Construct a Statement of cash flow for Timora B. Rown Nursing home based on the following information; Inpatient charges $200,000. ER Charges $75,000. Bad Debt $8%.
Suppose Company paid a dividend of $5.00 per share last year. The dividend is expected to grow at an annual rate of 25% for the next two years and at a constant annual rate of 6% thereafter. Assume a discount rate of 14%. Estimate the current value p..
Howell Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow 0 –$43,000,000 1 67,500,000 2 –18,000,000 Required: (a) If the company requires a 11 percent return on its investments, what is the NPV o..
On January 2, 2014, Jensen Company borrowed $102,000 from Lyon Country Bank. The terms of the loan agreement specified 4 equal annual payments at 6% annual interest. Compute the amount of each of these payments, assuming, they begin on December 31, 2..
Bond A has 4 years left to maturity and Bond B has 8 years left to maturity. They both have a 6% coupon rate, pays semi annually, and yield is 5%. Calculate the percentage change in each bond if interest rates suddenly increased by 2%.
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