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University Technologies, Inc. (UTI) has a current capital structure consisting of 10 million shares of common stock, $200 million of first-mortgage bonds with a coupon interest rate of 13 percent, and $30 million of preferred stock paying a 5 percent dividend. In order to expand into Asia, UTI will have to undertake an aggressive capital outlay campaign, expected to cost $200 million. This expansion can be financed either by selling 4 million new shares of common stock at a price of $50 per share or by the sale of $200 million of subordinated debentures at a pretax interest rate of 15 percent. The company's tax rate is 40 percent.
a. Compute the EBIT-EPS indifference point between the equity and debt financing alternatives.
How much in new fixed assets are required to support this growth in sales? Assume the company maintains its current operating capacity.
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Assume you're to receive the stream of annual payments (also called an "annuity") of $9000 every year for 3 years starting this year. What is the present value of these three payments?
The probability of a normal economy is 74 percent while the probability of a recession is 15 percent and the probability of a boom is 11 percent. What is the standard deviation of these expected returns?
You are considering the following two mutually exclusive projects. The required return on each project is 14 percent. Which project should you accept and what is the best reason for that decision?
Describe the risks associated with each investment
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The US dollar is the world's reserve currency. China, Russia, and other smaller countries are increasingly voicing a desire for a new currency to replace the US dollar as the world reserve. Why?
Grullon Corporation is considering a 7-for-3 stock split. The current stock price is $67.50 per share, & company believes that its total market value would increase by 5 percent as a result of the improved liquidity that should follow the split.
Explain Determining cross over rate by computing net present value
The company's weighted cost of capital (WACC)
What is the capital asset pricing model? What is the basic message of the CAPM?
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