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Juicers Inc. is thinking of acquiring Fast Fruit Company. Juicers expects Fast Fruit's NOPAT to be $9 million the first year, with no net new investment in operating capital and no interest expense. For the second year, Fast Fruit is expected to have NOPAT of $25 million and interest expense of $5 million. Also, in the second year only, Fast Fruit will need $10 million of net new investment in operating capital. Fast Fruit's marginal tax rate is 40%. After the second year, the free cash flows and the tax shields from Fast Fruit to Juicers will both grow at a constant rate of 4%. Juicers has determined that Fast Fruit's cost of equity is 17.5%, and Fast Fruit currently has no debt outstanding. Assume that all cash flows occur at the end of the year, Juicers must pay $45 million to acquire Fast Fruit. What it the NPV of the proposed acquisition? Note that you must first calculate the value to Juicers of Fast Fruit's equity.
A firm has a debt- equity ratio of 1.0. The required return on the firm’s assets is 16.1% and the pretax cost of debt is 9.1%. Ignore taxes. What is the firm's cost of equity?
Treasury bond yields are commonly used as the basis for yield curves because they are low risk and homogeneous in nature. The mutual fund, and not the investor, is responsible for all income taxes on capital gains and dividends earned by the fund. Li..
When used as evidence, what does an effective example do?
developing a balanced scorecardneed for organisations to measure and manage performance against objectives as well as
You are purchasing a new home and need to borrow $250,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.25% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay two points, they..
It is noted that initially, leverage can be the least expensive form of capital. However, if potential lenders feel a firm is overly leveraged, they may charge a punitive rate, or refuse to lend all together. This can be disastrous if a firm needs to..
A Smith industry has $24,000 in deposits that have been recorded by Smith but not by its bank. Smith also has $22,450 in outstanding checks that have not yet cleared the bank. Current balance is $14,400. Find: Net float. Is this desirable? Explain.
A ten-year bond, with par value equals $1000, pays 5% annually. If similar bonds are currently yielding 6% annually, what is the market value of the bond? Use semi-annual analysis.
A pharmaceutical company develops a media campaign targeting aging women at risk for osteoporosis. The ad is scheduled to run a total of 21 times and will air on several programs believed to reach the target population.
You are planning to save for retirement over the next 35 years. To do this, you will invest $900 per month in a stock account and $500 per month in a bond account. The return of the stock account is expected to be 11 percent, and the bond account wil..
Mike wants to have $3,000,000 in his 401(K) when he retires in 30 years. If he expects his 401(K) can earn 4.3% annual interest, about how much must Mike invest each year to reach his retirement goal?
Barton Industries expects next year's annual dividend, D1, to be $1.80 and it expects dividends to grow at a constant rate g = 4.5%. The firm's current common stock price, P0, is $22.90. What is the flotation cost adjustment that must be added to its..
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