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Consider firm B as an unlevered firm and firm C as a levered firm with target debt-to-equity ratio (B/ = 1. Both firms have exactly the same perpetual net operating income, NOI = 180, before taxes. The before-tax cost of debt, kb, is the same as the risk-free rate. The corporate tax rate = .5. Given the following market parameters,
a) Find the cost of capital and value for each firm. [Ignore any effect from personal income taxes.]
b) Evaluate the following four projects to determine their acceptance (or rejection) by firms B and C. What do the results of this evaluation tell you about leverage in a world with corporate taxes but no personal taxes?
You have decided to purchase a home after graduation, and you are saving for the closing costs ($3500) and down payment. To avoid paying mortgage insurance and to get a better interest rate, you need a down payment of 20%. The current nominal annual ..
Financial arbitrage is based on the theory that......
You have a chance to buy an annuity that pays $2.500 at the end of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?
The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is "looking up." As a result, the cemetery project will provide a net cash inflow of $87,900 for the firm during the first year, and th..
The examples in the text show a unique characteristic (think: positive or negative sign) associated with how the PRESENT VALUE (PV) of a monetary sum (when given) should be expressed when you are solving for future value (FV) of that sum. What is tha..
Ward Corp. is expected to have an EBIT of $2,350,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $174,000, $103,000, and $124,000, respectively. What is the price per share of the company's st..
Assume that all 1128 of units of Bead are sold in the Nano segment.- If the competitive environment remains unchanged what will be the Bead product's demand next year ?
Pierre Imports recently issued two types of bonds. The first issue consisted of 10-year straight debt with a 9 percent annual coupon. The second issue consisted of 10-year bonds with a 8 percent annual coupon and attached warrants. Discuss 3 advantag..
What is the purpose of outsourcing? How can it be helpful to a company's growth? How can it be harmful? Give examples to support your answer.
Perform a nonlinear regression of the velocity y against the enzyme concentration x, starting with initial values Va = 200 and K = .1 for the parameters.
Consider a four-year project with the following information: initial fixed asset investment = $430,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $24; variable costs = $16; fixed costs = $120,000; quantit..
The existence of unemployment compensation most likely will cause less unemployment.
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