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ABC Company and DEF Company are competitors, and being in the same industry they have tried to be very similar to each other with one significant difference. The CEO of ABC hates debt and the CEO of DEF thinks that debt is good for the income statement and improves DEF's return on equity. Here are the salient facts to consider:• ABC Company has 10,000 shares of common stock outstanding, and each share is worth $20.• The capital structure of DEF Company is $50,000 in debt with interest payments at 12% annually.• The total capitalization of ABC and DEF are the same.• Both firms think they will have earnings of $55,000 a year continuously and because of their costs, neither firm pays any taxes. For the purposes of this problem, investors can also borrow money at 12% annually.a) What is the value of ABC Company? ?b) What is the value of DEF Company? ?c) What is the market value of DEF Company's equity?d) Why is ABC's equity more or less risky than DEF's equity?
Philadelphia Corporation's stock recently paid a dividend of $2.00 per share, and stock is in equilibrium. The firm has a constant growth rate of 5% and a beta equal to 1.5.
Recalculate IBM's stock using the P/E ratio model and the needed info found in the IBM pdf file. Explain why the present stock price is different from the price arrived at using CGM (Constant Growth Model).
Discuss the financial and ethical implications for the financial institutions.
The required return on debt (before taxes) is 7.5%, the required return on equity is 15%, and the cost of capital is 10%. What are the proportions of debt and equity financing?
If the objective is to keep the price level the same next yr illustrate what percentage increase in the money supply should the central bank plan
Compute the future value of $1,000 in ten years assuming an interest rate of 12% compounded quarterly.
A company enters into a long futures contract to buy 5,000 bushels of wheat for 250 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000.
Assume you short-sell 100 shares of IBM, now selling at $178 per share. What happens to the maximum loss if you simultaneously place a stop purchase order at $192.50?
You have $2,000 invested in a bank account that pays a 4% nominal annual interest with daily compounding. How much money will you have in the account in 132 days from today?
A memorandum by Labor Secretary Robert Reich to President Clinton suggested that the government penalize United State companies that invest overseas rather than at home.
You're chief executive officer of multinational's subsidiary in developing host country. The subsidiary has been in business for about 8 years, making electric motors for the host country's domestic market, with mediocre financial results.
What is the future value of $1500 after 5 years if the appropriate interest rate is 12%, compounded monthly?
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