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The Lopez-Portillo Company has $11.9 million in assets, 70 percent financed by debt, and 30 percent financed by common stock. The interest rate on the debt is 13 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $24.5 million in assets. Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 16 percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 30 percent. 1) If EBIT is 14 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives 2) What is the degree of financial leverage under each of the three plans? 3) If stock could be sold at $20 per share due to increased expectations for the firm’s sales and earnings, what impact would this have on earnings per share for the two expansion alternatives? Compute earnings per share for each.
According to the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010). a)Do you think it will prevent a financial crisis like the one in 2007-08? What does consumer protection have to do with that crisis? What happened to banks that were ..
Compute Break-Even Point at the operating profit level: Ensco Lighting Company has fixed costs of $100,000, sells its units for $28 and has variable costs of $15.50 per unit. Compute the breakeven point.
A U.S. importer makes a purchase from a German firm in the amount of 21,000 euros. At the current spot rate of 0.75 Euros per dollar, how much is this purchase in U.S. dollars? If in 90 days the dollar weakens so that the spot rate is 0.70 Euros per ..
A stock will pay a dividend of $4 at the end of the year. It sells today for $100 and is expected to sell in one year for $105. What is the implied rate of return on this stock? Enter in percent and round to two decimal places.
You are familiar with the value chain as a vehicle for describing organizational business processes and the relationships between these processes (more on this later in the course). However, the "value chain" configuration is increasingly inadequate ..
Rixon Corporation purchases CHF call options with a strike price of USD 0.90. The option premium is USD 0.04 per currency unit. A financial analyst at Rixon forecasts the following possible values for spot CHFUSD at maturity. Calculate option payoff ..
navigation systems inc. now has total worldwide revenues of over 500 million forecast for this coming year. you have
Which of the following four investments has the highest PV? (Assume your required rate of return is 5% annually)
You own a portfolio that has $1,900 invested in Stock A and $3,000 invested in Stock B. Assume the expected returns on these stocks are 8 percent and 14 percent, respectively. Required: What is the expected return on the portfolio? (Do not round inte..
Harry Davis is interested in establishing a new division that will focus primarily on developing new Internet-based projects. what would your estimate be for the new division’s cost of capital?
A firm's overall cost of equity is:
What is percentage of long-term debt, common stock, retained earnings and preferred stock in each company’s capital structure? Prepare a table to display your results. Discuss each company’s relative amount of long-term debt, common equity and retain..
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