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Niglow Corporation produces metal castings. In the past year it earned a 10% return on its assets base of $10M. Niglow needs $10M to expand its operations, and has the option of obtaining none, some, or all of the proceeds from the bank. Currently the company is all equity financed. It expects to be able to maintain its return on assets after the expansion. The bank has indicated that the amount it will charge on the loan will be dependent upon the resultant debt/equity ratio. Specifically, the rates will be 9%, 10%, and 12% for debt to equity ratios less than or equal to 0.5, 1.0, and over 1.0, respectively. Niglow's tax rate is 40%.
Calculate Niglow's return on equity if the expansion is financed:
1. Using all equity
2. All debt
Bond J has a coupon rate of 5.9 percent. Bond S has a coupon rate of 15.9 percent. Both bonds have twelve years to maturity, make semiannual payments, and have a YTM of 12.8 percent. Requirement 1: If interest rates suddenly rise by 3 percent, what i..
Record the two transactions on the books of Bush Consulting. Include an explanation for each transaction..- Compute each account balance and denote it as Bal.
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Find the triangular arbitrage profit (in dollars) for someone that has access to 1 million dollars. Based on the information in the previous question, the yen will appreciate against the dollar to eliminate the arbitrage opportunity.
Suppose the average return on Asset A is 6.3 percent and the standard deviation is 7.5 percent and the average return and standard deviation on Asset B are 3.4 percent and 3.0 percent, respectively. In a particular year, the return on Asset A was −4...
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