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Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in equity. Both firms sell 10,000 units of output at $2.50 per unit. The variable costs of production are $1, and fixed production costs are $12,000.
a. What is the operating income (EBIT) for both firms? b. What are the earnings after interest? c. If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? d. Why are the percentage changes different?
Each warrant is expected to have a market value of $4.00 given that the stock sells for $42. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par?
Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is 6 months.
Increasing growth may require investment from firm and money spent on investment can't be employed to pay dividends. On one hand, cutting the firm's dividend to raise investment will raise the stock price if and only if the new investment has the ..
Candy and I were going through the last year's financial statements (year ended 31 December 2012) and I discovered that the income tax expense account was significantly lower than the income tax the company actually paid to the Australian Taxation Of..
A 5-year project has an initial fixed asset investment of $15,540, an initial NWC investment of $1,480, and an annual OCF of -$23,680. The fixed asset is fully depreciated over the life of the project and has no salvage value.
f a portfolio of the two assets has a beta of 2.26, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.
Why does money have a time value? Can you provide at least one real-life scenario in which you can apply the concept of "time value of money?"
The entrepreneur now sells another 400,000 shares of stock to a venture capitalist for $1 million. What is the post-money valuation of the company?
The Mitre Box Company is considering a project with an initial cost of $35,000 and future cash inflows of $20,000, $15,000, $10,000 and $5,000 over the next four years respectively.
what is the net amount received by the corporation if it acts rationally?
q.1 you have euro12 000 in cash. you can deposit it today in the mutual fund earning 8.2 semi-annually or you can stay
Calculate point price elasticity of demand when Q=1600. Is the demand elastic or inelastic at this quantity? How do you know?
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