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Seattle Health Plans currently uses zero-debt financing. Its operating income (EBIT) is $1 million, and it pays taxes at a 40% rate. It has $5 million in assets and, because it is all-equity financed, $5 million in equity. Suppose the firm is considering replacing half of its equity financing with debt financing bearing an interest rate of 8 %.b. Redo the analysis, but now assume that the debt financing would cost 15%c. Return to the initial 8% interest rate. Now, assume that EBIT could be as low as $500,000 (with a probability of 20%) or as high as $1.5 million (with probability of 20%). There remains a 60% chance that EBIT would be $1 million. Redo the analysis for each level of EBIT, and find the expected values for the firm's net income, total dollar return to investors, and ROE. What lesson about capital structure and risk does this illustration provide?8.2 Calculate the after-tax cost of debt for the Wallace Clinic, a for-profit healthcare provider, assuming thatthe coupon rate set on its debt is 11 percent and its tax rate isa. 0 percentb. 20 percentc. 40 percentAssignment TIPS:Consider using Excel to lay out the problem. First create a balance sheet with the following row descriptions and two columns - one for stock only and the other for stock/debt:Total assetsDebtCommon stockTotal liabilities & equityRemember that this is a balance sheet so total assets must equal total liabilities & equity.Then, create an income statement (also with two columns) with the following row descriptions (see Slide 16 of chapter 8 PowerPoint presentation [Filename FHFCH08SSE2.ppt] available on this week's module):Operating profit (we begin with this since the problem did not give a breakdown of income & expense)Interest expense (for the first problem, this is 8%)Taxable income (the net of earnings and interest)Taxes (40%) (the amount of taxable income due for taxes)Net income (the net of taxable income and taxes)Total dollar return to investors (this is basically the net income)Return on equity (ratio of dollar return to investors to equity in balance sheet, expressed as a percentage)
enciso corporation is preparing its cash budget for november. the budgeted beginning cash balance is 31000. budgeted
Explain Finding the required rate of return and valuation of Preferred Stock where Preferred stock valuation Ezzell Corporation issued perpetual preferred stock with a 11% annual dividend
A new project will increase A/R by $18000, decrease A/P by $6000, increase fixed assets by $36000 and decrease inventory by $11000. What is the amount the firm should use as the initial cash flow atributable to net work capital?
the bonds of casino inc. trade in the market at a yield of 10.8 have a 12 coupon rate and a promised yield of 14.0.
What is the purpose of computing a moving-average line for a stock? Describe a bullish pattern using a 50-day moving-average line and the stock volume of trading. Discuss why this pattern is considered bullish.
Both bonds pay interest semiannually. What is the firm's weighted average aftertax cost of debt if the tax rate is 35 percent? (Always use market value to calculate weight if not otherwise stated)
Abc Corporation's price earnings ratio is 8 and the market price of a share of common stock is $32. The corporation has 3,000 shares of preferred stock outstanding with each share receiving a dividend of $3 each share.
A stock market analyst is able to identify mispriced stocks by comparing the average price for last ten days to the average price for the last sixty days.
question 1. what happens to bond prices quantities and interest rates if make sure to include the supply and demand
CJ"s stock has a beta pf 0.9 the current risk free rate is 5.6 and the expected return or the market value is 13% . What is CJ's company cost of equity?
Levine Inc. is considering an investment that has an expected return of 15% and a standard deviation of 10%. What is the investment's coefficient of variation?
The company's common stock is selling for $18.25 per share. The bond is selling for $970. 1. What is the conversion value? 2. What is the conversion premium?
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