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ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $575,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $287,500 and the interest rate on its debt is 8.5 percent. Both firms expect EBIT to be $64,000. Ignore taxes.
Suppose Rico invests in ABC Co and uses homemade leverage. Calculate his total cash flow and rate of return.
What is the cost of equity for ABC and XYZ?
What is the WACC for ABC and XYZ?
Rise Against Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 200,000 shares of stock outstanding. Under Plan II, there would be 150,000 shares o..
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You are offered $1000 (in nominal dollars) 6 years from now in exchange for a loan of $750 today. You expect inflation to run 3.3% per year, and your real hurdle rate is 5%. Should you make the loan? You have $1000 in an account that yields a nominal..
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The purpose of this project is to familiarize you with the stock market - calculate the required rate of return on your stock using CAPM:BAD 350- Managerial Finance
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A firm currently has equity with a market value of $600,000,000 and debt with a market value of $500,000,000. The firm has 10,000,000 shares outstanding. The bonds offer investors a return of 8%. The firm is contemplating issuing $300,000,000 in new ..
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