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Read each question carefully and show all of your work clearly on the short-answer problems as partial credit will be given. 1. Buckeye Corp. is currently an all-equity firm with a market value of equity of $100 million. The current expected return on Buckeye's equity is 25%. Buckeye operates in a world with no taxes. Buckeye is planning on issuing $10 million in debt with an interest rate of 10% and using the cash to repurchase $10 million in shares. There are no corporate or personal taxes. (a) After Buckeye repurchases the stock, what will be the expected return on the firm's stock? (b) After Buckeye repurchases the stock, what will be the firm's weighted average cost of capital? 2. Green Manufacturing is an all equity firm with a current market value of $20,000,000 and 500,000 shares outstanding. The current expected return on the firm's stock is 20%. Green plans to announce that it will issue $2,000,000 of perpetual bonds and use these funds to repurchase equity. The bonds will have a 6% interest rate. After the sale of the bonds and the share repurchase, Green will maintain the new capital structure indefinitely. The corporate tax rate forGreen is 30% and there are no personal taxes. (12 points) (a) What will the stock price be immediately after Green announces its plan to issue bonds and repurchase equity? (b) What will the total market value of the firm's equity be immediately after Green announces its plan to issue bonds and repurchase equity? (c) How many shares will Green repurchase? (d) What will be the market value of Green's equity after the bond issue and share repurchase are completed? (e) What was Green's weighted average cost of capital before the change in capital structure? (f) What is Green's weighted average cost of capital after the change in capital structure?
What percentage of the payment represents interest and what percentage represents principal for each of the 3 years? Round all answers to the nearest hundredth.
the standard deviation of stock returns for stock a is 40. the standard deviation of the market return is 20. it the
Computation of future contract value and what is the farmer's net proceeds when corn is sold
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1. Thornley Machines is considering a 3-year project with an initial cost of $618,000. The project will not directly produce any sales but will reduce operating costs by $265,000 a year. The equipment is depreciated straight-line to a zero boo..
1. What would an investor be willing to pay for common stock in a firm that is expected to pay an annual dividend that will grow at 10 percent over the next 2 years, then grow at 5 percent for 3 years and then stop growing (i.e., will grow at zero pe..
q.a star wall street trader is negotiating his 1st contract. his opportunity cost is 10. he has been presented the 3
He is trying to decide which of the two companies he will buy. Tobacco Company of America's cost of capital is 10 percent.
Create a X-Y scatter plot of your data, with the return on the stock as the vertical axis and the return on the market as the horizontal axis. Name this chart as SCATTER in your workbook and be sure to label the axes.
Find out the annual payment required to fund the future annual annuity of $12,000 per year. You will fund this future liability over the upcoming five years, with the first payment to take place one year from today.
Corporate finance Explain one way a firm can report current cash flow different from the true (un-managed or un-played with) amount. That method must not be an illegal act.
Determine the modified internal rate of return for each project. Should they be accepted. Do you feel it is better evaluation technique than the internal rate of return? Why or why not?
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