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Abe Forrester and three of his friends from college have interested a group of venture capitalists in backing their business idea. The proposed operation would consist of a series of retail outlets to distribute and service a full line of vacuum cleaners and accessories. These stores would be located in Dallas, Houston, and San Antonio. To finance the new venture two plans have been proposed:• Plan A is an all-common-equity structure in which $2.2 million dollars would be raised be selling 84,000 shares of common stock.• Plan B would involve issuing $1.3 million dollars in long-term bonds with an effective interest rate of 11.8% plus $.9 million would be raised by selling 42,000 shares of common stock. The debt funds raised under Plan B have no fixed maturity date, in that this amount of financial leverage is considered a permanent part of the firm’s capital structure.Abe and his partners plan to use a 34% tax rate in their analysis, and they have hired you on a consulting basis to do the following:
a. Find the EBIT indifference level associated with the two financing plans.b. Prepare a pro forma income statement for the EBIT level solved for in Part a. that shows that EPS will be the same regardless whether Plan A or B is chosen
When planning the benefits of risk management, why would you say that historical information is a benefit of risk management?
challenge problem consider a market with only the following three risky assetsexpected return per month risk
Explain the concepts of present value and discuss your interpretation of their value as assessment tools for accountant or operator (include an example).
Discuss how can the measures of interest rate risk be used to predict future earnings performance.
What are the keys to successful control, and what are the barriers to control success.
Plot the cash flow from operations, net income before extraordinary items, and net income over the five-year period of bank of America on the same graph. Analyze these trends.
Determine the amount of dividends per share for common and prefrred stock for all 3 years. The preferred shares are cumulative preferred.
Its profitmargin is forecasted to be 5%, and the forecasted retention ratiois 30%. Use the AFN equation to forecast the additional fundsCarter will need for the coming year.
Locate the financial section of the organization's most recent year report. Perform a financial analysis on your selected organization to include liquidity, efficiency, and asset management, debt management, profitability ratios, and market returns.
Computation of weighted average cost of capital and construct a pro forma balance sheet that indicates the firm's optimal capital structure
The board of directors of API, a relatively new electronics manufacturer, has decided to beginning paying a common stock dividend to increase the attractiveness of the stock in the free market
What is the weighted average cost of capital WACC
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