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Abe Forrester and three of his friends from college have interested a croup fo venture capitalists in backing their business idea. The proposed operation would consist of a series of retail outlets to distribute and service a full line of vacuum cleaners and accessories. These stores would be located in Dallas, Houston, and San Antonia. To finance the new venture two plans have been proposed. Plan A is an all common equity structure in which $2.3 million dollars would be raised by selling 86,000 shares of common stock. Plan B would involve issuing $1.5 million dollars in long term bonds with an effective interest rate of 11.6% plus $0.8 million would be raised by selling 43,000 shares of common stock. The debt funds raised under Abe and his partners plan to use a 40% tax rate in their analysis, and they have hired you on a consulting basis to do the following. A. Find the EBIT indifference level associated with the two financing plans. B. Prepare a pro forma income statement for the EBIT level solved for in part A. That shows that EPS will be the same regardless whether Plan A or B is chosen.
Trigen Corp. management will invest cash flows of $1,263,837, $548,573, $1,448,382, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years.
The company uses a process costing system and has always made the simplifying assumption that wafers in production, but not yet finished, are 50 percent complete with respect to conversion costs.
Tobin's BBQ has a bank loan at 8% interest and an after-tax cost of debt of 6%. What will the after-tax cost of debt be when the loan is due if a new loan is taken out yielding 11%
Suppose a German company issues a bond with a par value of 1000, 15 years to maturity, and a coupon rate of 7.7 percent paid annually. If the yield to maturity is 8.8 percent, what is the current price of the bond
Discuss key reasons why a country should engage in global trade, and describe the control systems that can be put in place to protect domestic trade.
The first debt is $570 due in 8 months, and the second is $1380 due in 18 months. What will that single payment be if she wants to make it at the end of 1 year given a compound interest rate of 4.9%?
Perry Edwards is 25 years old. He and his wife Anita have two children, Shane and Lisa, ages 1 and 3 respectively. Perry wants to retire in 40 years and refurbish old cars.
Dick and Jane (and their dog Spot) have just purchased a house and are calculating how much money they will need when the closing day rolls around. The purchase price is $150,000.
The bank officials are concerned about the on-going shrinkage of bank assets as a share of total assets of financial institutions in the United States. In the late 1990s, assets of commercial banks as a percentage of total assets
What is the yield to maturity on a Treasury STRIPS with 7 years to maturity and a quoted price of 65.492
Students will construct a well-diversified portfolio using an initial investment stake of $50,000 (the portfolio should use 95% of the fund, but they may not use more than $50,000).
You have a car loan with a nominal rate of 7.29 percent. With interest charged monthly, what is the effective annual rate (EAR) on the loan
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