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The common stock and debt of Northern Sludge are valued at $60 million and $40 million, respectively. Investors currently require a return of 17.0% on the common stock and 7.0% on the debt. If Northern Sludge issues an additional $24 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes.
New return on equity %
XYZ Corporation, located in the United States, has an accounts payable obligation of ¥750 million payable in one year to a bank in Tokyo. The current spot rate is ¥116/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United ..
Tool Makers, Inc. uses tool and die machines to produce equipment for other firms. The initial cost of one customized tool and die machine is $850,000. This machine costs $10,000 a year to operate. Each machine has a life of 3 years before it is repl..
Flying Bat Corporation is currently planning to start production of boat navigation systems. The firms selling price per unit is $410.58. Variable costs per unit $258.41. Interest expense is running at $50,000 per year, while fixed costs total $422,7..
Calculate the value of leverage for Cruise Company and Kidman Company, whose economic balance sheets are shown. Assume the marginal corporate tax rate is 35%, the marginal tax rate on personal income derived from equity is 20%, and the marginal tax r..
Chester has negotiated a new labor contract for the next round that will affect the cost for their product Cute. Labor costs will go from $2.90 to $3.50 per unit. Assume all period and other variable costs remain the same. If Chester were to absorb t..
In foreign countries it is quite common for banks to own nonfinancial companies and vice versa. Do the U.S. laws restricting banking and commerce because U.S. banks to be at a competitive disadvantage internationally? What are the benefits of such re..
Tierney Enterprises is constructing its cash budget. Its budgeted monthly sales are $7,000, and they are constant from month to month. 40% of its customers pay in the first month and take the 2% discount, while the remaining 60% pay in the month foll..
Suppose that in 2010, a $5 silver certificate form 1898 sold for 12,200. For this to have been true, what would the annual increase in the value of the certificate have been?
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,078,000 and will last for six years. Variable costs are 30 percent of sales, and fixed costs are $220,000 per year. The required return i..
Who Dat Restaurant is considering the purchase of a $10,100 soufflé maker. The soufflé maker has an economic life of four years and will be fully depreciated by the straight-line method. The machine will produce 2,050 soufflés per year, with each cos..
Handler, Inc., has sales of $19,430, costs of $9,460, depreciation expense of $2,230, and interest expense of $1,620. If the tax rate is 35 percent, what is the operating cash flow, or OCF?
If the portfolio return on a mutual fund is greater than the market return, but the Sharpe and Treynor measures are equal, then the fund manager's performance is
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