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The firm’s unlevered (asset) beta is 0.77. Book and market values are equal. The firm has $40 million of debt, 5% interest rate, and $60 million of equity outstanding. The market risk premium is 4%.The firm is considering refinancing by selling bonds to repay the old debt and repurchase stock. The new debt will be issued in the amount of $50 million, paying interest at a rate of 10%. What will the firm’s unlevered (asset) beta be after refinancing?
Value Lodges owns an economy motel chain and is considering building a new 200-unit motel. The cost to build the motel is estimated at $8,040,000; Value Lodges estimates furnishing for the motel will cost an additional $720,000 and will require repla..
A bank offers two 30 year, fixed rate, fully amortizing LPMs: an 85% LTV loan at 6%, and an 80% LTV loan at 5.5%. What is the marginal cost of borrowing if the loan is going to be held for 10 years?
Assume that the average firm in your company’s industry is expected to grow at 6% and its dividend yield is 7%. Your company expects its dividends to grow 50% this year, 25% the following year, after which growth returns to the 6% industry average. I..
What is the EFN to achieve the projected 50% growth rate (change the Notes Payable, Long-term debt, and common equity to make the balance sheet balanced)?
At the beginning of 2012, Annie, Inc. has a deferred tax asset of $7,500 and deferred tax liability of $10,500. In 2012, pretax financial income was $826,000 and the tax rate was 35%.
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $496,000 is estimated to result in $195,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Ta..
Layla Corp. has a 13 percent ROE and a 20 percent payout ratio. What is its sustainable growth rate? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
John Adams opened a bank saving account with $5,000 15 years ago. Today, the account balance is $$12,000. If the account paid interest compounded annually, how much interest on interest was earned?
An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 24% while the standard deviation on stock B is 14%. The correlation coefficient between the return on A and B is 0.35. The expected ..
Bradford Manufacturing Company has a beta of 1, while Farley Industries has a beta of 0.85. The required return on an index fund that holds the entire stock market is 9.5%. The risk-free rate of interest is 4.5%. By how much does Bradford's required ..
Organizational structure is defined as
Suppose that you barrow $17,000 at 15% compounded monthly over four years. Knowing that the 15% represents the market interest rate, you realize that the monthly payment in actual dollars will be $473.12. If the average monthly general inflation rate..
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