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Barbarita’s Linens want to expand into the store next door to set up a Baby Supply Store. She needs $150,000 for the build out and new inventory of the project.
Barbarita has a $250,000 line of credit from Hialeah National bank that is fully available at an interest rate of 6 percent. $1,000,000 in equity with a cost of 3 percent. The Barbarita’s Linens just cancelled the $600,000 in preferred stock to Tia Olga, which paid an annual dividend of 10%. The companies’ tax rate is 30%.
a) Calculate the WACC.
b) Please explain this situation in words. How much will the expansion cost in annual interest? Explain your logic.
Puckett product is planning for $5 million in capital expenditures next year. Puckett’s target capital structure consists of 60% debt and 40% equity. If net income next year is $3 million and Puckett follows a residual distribution policy with all di..
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It requires that all projects have a positive net present value when cash flows are discounted at 10 percent and that all projects have a payback no longer than three years. Which project or projects should the firm accept? Why?
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Residual dividend model Axel Telecommunications has a target capital structure that consists of 70% debt and 30% equity. The company anticipates that its capital budget for the upcoming year will be $3,000,000. If Axel reports net income of $2,000,00..
FITCO Inc. is a Pharmaceutical company which is considering investing in a new equipment for the production of pain-reliever machine for individuals who suffer from cardio vascular diseases. Calculate the initial outlay of the project. Calculate the ..
What is portfolio theory and why is it important to investing behavior?
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