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GTB, Inc., has a 25 percent tax rate and has $57.80 million in assets, currently financed entirely with equity. Equity is worth $5 per share, and book value of equity is equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Pessimistic Optimistic Probability of state 0.45 0.55 Expected EBIT in state $ 2,687,700 $ 15,172,500 The firm is considering switching to a 25-percent-debt capital structure, and has determined that it would have to pay a 9 percent yield on perpetual debt in either event. What will be the level of expected EPS if GTB switches to the proposed capital structure? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Acquiring firms send a signal that their stock is undervalued if they choose to use stock to pay for the acquisition. Managers often are fired in takeovers, but never in mergers. If a company that produces military equipment merges with a company tha..
Assume that you manage a mutual fund with an expected rate of return of 18% and a standard deviation of 34%. The T-bill rate is 5.5%. An investor wants to invest in your fund and T-bills such that the standard deviation of the investor’s total portfo..
Deci-Bell, Inc. is producing new headphones. Deci-Bell Inc. has a base level of sales of 312,464 units. Sales price per unit is $148.61 and variable cost per unit is $61.52. Total annual operating fixed costs are $6,294,441.
Suppose that a manufacturer has an ongoing need for silver as a raw material in the production process, and is concerned about the risk of the price of silver going up. Two hedging choices being considered are futures contracts and options. discuss t..
problemst co. is a closely held corporation incorporated under the laws of the state of delaware with 100 shares of
Financial Plan of Dinner Theatre- Develop a financing plan to raise capital for a new venture. The 8 to 10 page paper should cover major course concepts
Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 5%. The company's weighted average cost of c..
Capital structure and dividend policy A large travel company owns a resorts and hotels. The CFO wants to change the company's capital structure. The change will mean that debtratio (debt-to-value-ratio) is increased to 50% by a large issuance of new ..
Consider a 6-month European put on GOOG with a strike price of $650. GOOG spot price is $725 and its volatility is 25%. The stock is not expected to pay any dividend. The risk-free rate is 4%. What is the put delta? If an investor with a short positi..
Deep Water Drilling has operations off the coast of South America helping its clients (principally sovereign oil companies) tap into oil reserves located more than 10,000 feet below sea level. The Company’s cost of capital is 6%. If Deep Water Drilli..
The PMBA Corp (beta = 1.3) is trying to determine it cost of equity. You have been asked to give the cost of equity using a variety of methods. The methods to be used are the CAPM, and the DCF model. Calculate the three costs on equity. Explain the d..
In March 2012, Daniela Motor Financing (DMF), offered some securities for sale to the public. Under the terms of the deal, DMF promised to repay the owner of one of these securities $400 in March 2052, but investors would receive nothing until then. ..
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