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Say you decide to start a firm and you need $500 million of capital to begin. You sell stock for its par value, a total of one million shares (par value is $200 per share), and sell $300 million of bonds at par value. You use the capital you just raised to buy $500 million of equipment. Assume that the average cost of capital = 12%. In the first year of operation, EBIT = $105 million, tax rate 40% and the required rate of return on equity is 22%. Assume that the market expects that the firm will continue to grow its Economic Profit at a rate of 6% annually, what is the market price per share of stock?
How do we calculate an earnings growth rate? Please illustrate your calculation using an example you make up yourself and not one from the book or the internet.
Tom has the opportunity to purchase investments that will pa $30,000 in 5 years. The purchase price of the investment today is $18,000. Should he make the purchase if he can earn 10% on his investments?
A Super Company urgently needs $600,000.00 for its business; will pay a Willing Sponsor the sum of $102,000.00 per year for the next 8 years for investing that requested sum. The Financial Bank is satisfied with getting the rate of 12% for the money...
Benjamin Garcia's start-up business is succeeding, but he needs $209,000 in additional funding to fund continued growth. Benjamin and an angel investor agree the business is worth $836,000 and the angel has agreed to invest the $209,000 that is neede..
Comet Powder Company has purchased a piece of equipment costing $100,000. It is expected to generate a 10-year stream of benefits amounting to $16,273 per year. Determine the rate of return Comet expects to earn from this equipment.
What is capital budgeting? Why are capital budgeting decisions so important to businesses? b. What is the purpose of placing capital projects into categories such as mandatory y replacement or expansion of existing products, ser- vices, or markets? c..
Referencing this week’s readings and lecture, describe the following terms as they relate to the statement of cash flows: cash, operating activities, investing activities, and financing activities. What can creditors, investors, and other users glean..
Your company has decided that its capital budget during the coming year will be $20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for..
The real risk-free rate is 2.8%. Inflation is expected to be 2.85% this year, 4.75% next year, and then 3.3% thereafter. The maturity risk premium is estimated to be 0.05(t - 1)%, where t = number of years to maturity. What is the yield on a 7-year T..
Titan Mining Corporation has 8.6 million shares of common stock outstanding, 300,000 shares of 5 percent preferred stock outstanding, and 160,000 7.4 percent semiannual bonds outstanding, par value $1,000 each. What is the firm’s market value capital..
Fashion Wear has bonds outstanding that mature in 12 years, pay interest annually, and have a coupon rate of 7.5 percent. These bonds have a face value of $1,000 and a current market price of $1,060. What is the company's aftertax cost of debt if its..
When you graduate you have $15,000 on your credit card which charges an APR of 14% compounded monthly. The credit card company tells you that your minimum payment is $232.90. If you make the minimum payment every month, After an injury, you win a law..
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