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Omega Corporation has 10.4 million shares outstanding, now trading at $59 per share. The firm has estimated the expected rate of return to shareholders at about 11%. It has also issued $220 million of long-term bonds at an interest rate of 6%. It pays tax at a marginal rate of 35%.
a. What is Omega's after-tax WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b. What would WACC be if Omega used no debt at all? (Hint: For this problem you can assume that the firm's overall beta [βA] is not affected by its capital structure or by the taxes saved because debt interest is tax-deductible.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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What reasons can you give for the bank's low return on common equity?- What impact do you think this performance by the bank is having on the value of its debt and equity securities?
Consider the Deacon and Sonstelie
A three-year bond has 8.0% coupon rate and face value of $1000. If the yield to maturity (YTM) on the bond is 10%, calculate the price of the bond assuming that the bond makes semi-annual coupon interest payments
Each unit is projected to generate net cash flows of $5,166.15 per year for seven years. How should Malik Properties proceed and why?
Based on the following probability distribution what is security expected return?
Second, the Profitability Index (PI) has been revised giving a Modified Profitability Index (MPI). Why were the IRR and the PI revised? When are these measures appropriate to use?
Using one of the two formulas cited in this module (T-Test, Z-Test, Tukey's HSD, Two-Way Annalysis of Variance) calculate the correlation coefficient using the following values presented below.
Speedy Delivery Company purchases a delivery van for $28,000. Speedy estimates that at the end of its four-year service life, the van will be worth $4,000.
A 10-year, semiannual payment bond with a par value of $1,000 has a 7% coupon annual rate. Currently, this bond is a par bond on the market. Use the above information to answer the following questions.
The ten-day VaR, calculated by multiplying the one-day VaR by the square root of 10, is $2 million. What is a better estimate of the VaR that takes account of autocorrelation?
The asset has an acquisition cost of $7,400,000 and will be sold for $1,750,000 at the end of the project. If the tax rate is 35 percent, what is the after tax salvage value of the asset?
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