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Microsoft Inc. is considering an expansion project. The firm is an all equity firm with a book value of $1,200,000 and the firm has 375,000 shares issued and outstanding. The firm has a tax rate of 40 percent, has just paid its most recent dividend of $3.80 and the firm is expected to grow at 5 percent forever. The return on government T-bills is 3 percent, the return on the market portfolio is 15 percent and the firm has a beta 0.9979. Microsoft has determined the cost of the expansion will be $4,500,000. They have decided to raise the funds by issuing new equity shares through a rights offering. The flotation cost of equity will be 4 percent, and the firm requires that the flotation costs must be covered by the new issue. The new shares will be sold to the existing shareholders at a subscription price of $37.50, which is a discount of the current market price.
a) Calculate the number of rights a shareholder will need to provide when buying a share of the new equity issue.
b) Calculate the value of each right.
c) You own 37,500 of the shares of Mapleton on the announcement date. Calculate your net wealth and ownership position in the company on the announcement date.
A Japanese company has a bond outstanding that sells for 94 percent of its ¥100,000 par value. The bond has a coupon rate of 6.10 percent paid annually and matures in 17 years. What is the yield to maturity of this bond?
The City of Sustainberg started 2016 with $500,000 in cash reserves. In 2016, they expect to spend $1.75 million, and they’ve forecasted $1.8 million in revenues. Their revenues are growing at a rate of 2% per year. Their expenses are growing at a ra..
An investor sells a stock short for $50 a share. A year later, the investor covers the position at $44 a share. If the margin requirement is 60 percent, what is the percentage return earned on the investment?
According to the spending multiplier for a small open economy, by how much will domestic product and income increase?
Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $440,000 is estimated to result in $175,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and ..
Consider the hypotheses shown below. Given that x overbar = 113, σ=25?, n=48, α=.10?, complete parts a and b. Upper H 0H0?: μ=119 Upper H 1H1?: μ ≠119. What conclusion should be? drawn? b. Determine the? p-value for this test. The critical? z-score(s..
Suppose Tapley Inc. uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Tapley accept, assuming that the company uses the NPV me..
App Store Co. issued 13-year bonds one year ago at a coupon rate of 6.5 percent. The bonds make semi-annual payments. If the YTM on these bonds is 5.4 percent, what is the current bond price?
TCG plans to acquire a sports media company. TCG has narrowed the decision down to two potential targets. Assuming that the acquisition is a mutually exlusive project, which decision rule enables TCG to rank the companies and choose the best one?
ABC Corportion has 90-day receivables of Euro 500,000. The following info is available: A call option on Euro that expires in 90 days has an exercise price of $1.20 and has a premium of $0.03. A put option on Euro that expires in 90 days has an ecerc..
A 10-year bond with a face value of $1000 is redeemable at par and earns interest at 7.4% convertible semiannually. If the yield rate is 8.8% convertible semiannually, find the book value immediately after the payment of the 6th coupon.
Describe how the level and trend of behavior can be used to define a pattern of behavior in a graph showing the data from one phase of a single-subject design.
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