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Gresham Corporation has 40% debt and 60% equity (market values) in its capital structure. The pretax cost of debt is 8.5%, and that of equity 15.5%. The total value of the company is $320 million and its income tax rate is 40%. Gresham has to raise $30 million in new capital, which will make the expected EBIT of the company to be $22 million, with a standard deviation of $11 million. The company has decided to raise the new capital half with debt and half with equity at the existing rates. Calculate Gresham's new WACC, and the probability that its interest coverage ratio will be less than one.
What is the current price for a General Electric 6% corporate bond with 10 years to maturity if the market rate of interest for similar bonds is 7%? What would the current price be if the market rate of interest drops to 4%? What financial principal ..
The heat loss through the exterior walls of a certain poultry processing plant is estimated to cost the owner $2,800 next year. A salesman from Superfiber Insulation, Inc., has told you, the plant engineer, that he can reduce the heat loss by 80% wit..
In 2014, Mary sells for $15,000 a machine used in her business. The property was purchased on May 1, 2012, at a cost of $12,500. Mary has claimed depreciation on the machine of $4,750. What is the amount and nature of Mary's gain as a result of sale ..
Which method of accounting is more commonly used by external stakeholders? Then, which method of accounting is primarily for internal decision making? Financial Accounting or Managerial Accounting?
What is the present value of $300.00 per year, at a discount rate of 12%, if the first payment is received 4 years from now and the last payment is received 25 years from now?
Page Enterprises has bonds on the market making annual payments, with twelve years to maturity, and selling for $960. At this price, the bonds yield 6.50 percent. What must the coupon rate be on the bonds?
Calculate the bond equivalent yield and effective annual return on a jumbo CD that is 115 days from maturity and has a quoted nominal yield of 6.62 percent.
Zeniba Inc.’s stock is currently selling for $23.56 per share. The company just paid a dividend = $2.00 per share (i.e., D0 = $2.00), and investors expect the dividend to grow at a constant rate out into the future. Investors require a minimum annual..
You are willing to pay $15,625 now to purchase a perpetuity which will pay you and your heirs $1,250 each year, forever, starting at the end of this year. If your required rate of return does not change, how much would you be willing to pay if this w..
The Faulk Corp. has a 6 percent coupon bond outstanding. The Gonas Company has a 13 percent bond outstanding. Both bonds have 8 years to maturity, make semiannual payments, and have a YTM of 9.5 percent. If interest rates suddenly fall by 2 percent, ..
An investment of $83 generates after-tax cash flows of $46.00 in Year 1, $70.00 in Year 2, and $131.00 in Year 3. The required rate of return is 20 percent. The net present value is
Prepare and submit a consultancy report to the management of Anthony's Orchard, the company studied throughout this module. The company is considering expanding its product line to include apple juice.
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