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Suppose we are analyzing Firm X. Firm X is financed with both equity and debt and will exist for only one year. If the economy is good, the equity holders will receive $220,000. If the economy is poor the equity holders will receive nothing. The debt holders will receive a payment of $65,000 regardless of the economy (i.e. there is no possibility of default). There are no other possible outcomes. Each of the two possible outcomes is equally likely. The beta of the equity is 2.12. The risk-free rate is 5%, and the market risk premium is 4%. Assume there are no taxes, no bankruptcy costs, information is held in common and that the firm's investment policy is fixed. Also assume that the CAPM is true.
a.) Evaluate What is the value of the firm's equity?
b.) Find what is the value of the firm's debt?
c.) What is the firm's WACC?
d.) What would the cost of capital be if the firm was 100% equity?
Next year's earnings are estimated to be $6.00. The company plans to reinvest 33% of its earnings at 12%. If the cost of equity is 8%, what is the present value of growth opportunities?
Journalizing dividend and treasury stock transactions, and preparing stockholders' equity Prepare the stockholders' equity section of Lennox Health Foods' balance sheet at December 31, 2012.
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On the basis of Free Cash Flow and weighted Average cost of capital using income statements and balance sheets
Describe Decision making based on NPV of capital project and calculate the present value of the salary differential for completing the certification pro-gram
ABC Incorporated shares are currently trading for $32 per share. The firm has 1.13 billion shares outstanding. In addition, the market value of the firm's outstanding debt is $2 billion.
Critically discuss the differences between the binomial option pricing model and risk-neutral method of option pricing.
Basic Buildings Inc. has decided to go public with a $5,000,000 new equity issue. Its investment bankers agreed to take a smaller fee now (6 percent of par value versus 10 percent) in exchange for a 1-year option to purchase an additional 200,000 ..
Find out the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in years 1-9? Find out the maximum lease payment which you would be willing to make?
Four months ago, you purchased 1,500 shares of Lakeside Bank stock for $11.20 a share. You have received dividend payments equal to $0.25 a share.
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