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Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 5,000 shares of stock outstanding, currently worth $20 per share. Beta Corporation uses leverage in its capital structure. The market value of Beta's debt is $25,000. The cost of this debt is 12 percent per annum. Each firm is expected to have earnings before interest of $350,000 in perpetuity. Neither firm pays taxes. Assume that every investor can borrow at 12 percent per annum. (Hint: Answers to all the questions below are applications of MM capital structure irrelevance theory in a taxless world)a. What is the value of Alpha Corporation?b. What is the value of Beta Corporation?c. What is the market value of Beta Corporation's equity?d. How much will it cost to purchase 20 percent of each firm's equity?e. Assuming each firm meets its earnings estimates, what will be the dollar return to each position in part (d) over the next year?f. Construct an investment strategy in which an investor purchases 20 percent of Alpha's equity and replicates both the cost and dollar return of purchasing 20 percent of Beta's equity.g. Is Alpha's equity more or less risky than Beta's equity? Explain.
Suppose the total expense for your current year in college equals $20,000. Approximately how much would your parents have needed to invest 21 years ago in an account paying 8 percent compounded annually to cover this amount?
A company is increasing rapidly and is not paying dividends at this time. Investors expect it to start paying dividends beginning 3 years from today starting at $1.00.
James Corporation is worried about managing cash efficiently. On the average, inventories have an age of 90 days, and accounts receivable are collected in sixty days.
Select two major currencies from the past year. What are similarities and differences between them? What have been drivers of each currency's performance?
Suppose you purchase a share of The Ludwig Corporation stock for $21.40. You expect it to pay dividends of $1.07, $1.1449, and $1.2250 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $26.22 at the end of 3 years.
CMBA 5621 Financial Management, Individual Problem Set #1: Explain the economic interpretation of the discount factor (1/interest rate factor) calculated from the market price of a risk free investment.
Look up the daily trading volume for the following stocks during a recent 5 day period please identify the five-day period selected.
There are seven years remaining on a ten year car loan. The interest rate is 10.25%. The monthly payments are $450.00. The credit union is willing to accept the present value of the loan as a pay off.
Discuss the financial and ethical implications for the financial institutions.
K&k Corporation had the following results for this year: Sales of $20,000; assets of $10,000: Current liabilities of $200; Return on Sales of 10 percent.
Calculate a recent 5 years average of the following ratios for three corporations of your choice attempt to select diverse firms.
Explain questions on investments and transfer pricing and capital budgeting and One criticism of the payback method is that it ignores cash flows that occur after the payback point has been reached
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