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1. A firm is considering two different capital structures. The first option is an all-equity firm with 40,000 shares of stock. The second option is 28,000 shares of stock plus some debt. Ignoring taxes, the break-even level of earnings before interest and taxes between these two options is $52,000. How much money is the firm considering borrowing if the interest rate is 9 percent?
$175,000
$173,333
$208,333
$216,667
$225,000
2. Glass Growers has a cost of capital of 11.1 percent. The company is considering converting to a debt-equity ratio of .46. The interest rate on debt is7.3 percent. What would be the company’s new cost of equity? Ignore taxes.
12.85 percent
11.13 percent
12.36 percent
12.44 percent
11.61 percent
Would you prefer making a $25,000 investment that will earn interest at the rate of 6 percent compounded monthly or making the same $25,000 investment at 7 percent compounded annually?
A hedge trades price risk for basis risk. Therefore, an understanding of what causes basis to be weak or strong is useful for understanding the outcome of hedges. In a corn market impacted by drought, basis would likely be strong. Likewise, suppose t..
A 4.25 percent coupon municipal bond has 13 years left to maturity and has a price quote of 105.10. The bond can be called in eight years. The call premium is one year of coupon payments. (Assume interest payments are semiannual and a par value of $5..
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Thatcher Corporation's bonds will mature in 11 years. The bonds have a face value of $1,000 and an 9% coupon rate, paid semi annually. The price of the bonds is $1,050. The bonds are callable in 5 years at a call price of $1,050. What is their yield ..
One way to calculate a stock's beta is to
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In its most recent financial statements, Newhouse Inc. reported $25 million of net income and $300 million of retained earnings. The previous retained earnings were $285 million. How much in dividends were paid to shareholders during the year? Assume..
What if the interest rate increases to 13 percent at the end of year 1? How much interest will be accrued as negative amortization in year 1 if the payment remains at $800? Year 5?
Harlan County Mining, a Kentucky-based coal mine, has expected earnings before interest and taxes of $6.2 million. Its unlevered cost of capital is 13 percent and its tax rate is 34 percent. The firm has debt with both a book and a market value of $3..
Which of the following statements about coding is incorrect?
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