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Zombie Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 40% debt. Currently, there are 1,000 shares outstanding and the price per share is $70. EBIT is expected to remain at $7,000 per year forever. The interest rate on new debt is 7% and there are no taxes.
a) a, Ms. Spears, a shareholder of the firm owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100%?
b) b, What will Ms. Spears cash flow be under the proposed capital structure of the firm? Assuming that she keeps all 100 of her shares.
c) c, Suppose Zombie does convert, but Ms. Spears prefers the current all-equity capital structure. Show how she could unlever her shares of stocks to recreate the original capital structure.
Use the information in the previous problem and consider a portfolio with weights of .60 in stocks and .40 in bonds.
What are the PV and FV of a 10-year ordinary annuity of $500 at 10% and PV and FV of the same annuity if it bacomes an annuity due?
David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security: Par Value: $1,000 Cost: $920 Coupon rate: 7.5% Years to maturity: 10 Tax Bracket 35%.
If Acme's free cash flow is expected to be $7 million next year and is expected to grow at a rate of 3% per year, what is Acme's WACC?
X comapny is planning the pruchase of one of two microfilm cameras, R and S. Both should provide benefits over a 10-year period, and each requires an initial investment of $4,000.
Given the break-even EBIT and the expected annual EBIT of FC, should the firm take on debt equal to 40% of its levered value or not? Justify your answer.
What special issues can arise in executing the cross-border acquisition and in ultimately meeting your objectives for the successful combination?
Time Value of Money project
The bond makes no payments for the first six years, then pays $2,100 every six months over the subsequent eight years, and finally pays $2,400 every six months over the last six years. What is current price of Bond M?
You are trying to assess the value of a small retail store that is up for sale. The store generated cash flow to it owner of $100,000 in the most profitable year of operation and is expected to have growth of about 5 percent a year in perpetuity.
Calculate the NPV in U.S. dollars. (Show all calculations and ignore working capital)
Make sure that you show your work on each circumstance and the overall benefit of the method you determined to be best.
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