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Abe Forrester and three of his friends from college have interested a group of venture capitalists in backing their business idea. The proposed operation would consist of a series of retail outlets to distribute and service a full line of vacuum cleaners and accessories. These stores would be located in Dallas, Houston and San Antonio. To finance the new venture two plans have been proposed:
*Plan A is an all-common-equity structure in which $2.2 million dollars would be raised by selling 86,000 shares of common stock.
*Plan B would involve issuing $1.3 million dollars in long-term bonds with an effective interest rate of 12.3% plus $0.9 would be raised by selling 43,000 shares of common stock. The debt funds raised under Plan B have no fixed maturity date, in that this amount of financial leverage is considered a permanent part of the firm's capital structure.
Abe and his partners plan to use a 38% tax rate in their analysis, and they have hired you on a consulting basis to do the following:
a. Find the EBIT indifference level associated with the two financing plans
b. Prepare a pro forma income statement for the EBIT level solve for in Part A. that shows EPS will be the same regardless whether Plan A or B is chosen.
A center income worker, with a dependent spouse older than normal retirement age, stopped working in January 2004. In the year prior to retirement, her gross monthly receiving were $1,500.
Calculate the EAR for two banks, make a recommendation to the best option and compute payments for the selected loan
What is the industry average price-earnings ratio and what is the price-earning ration for Reagan Inc.,? Is this the relationship you would expect between the two ratios? Why?
Discuss and explain the concepts of present value and capital finance. You will require reflecting on concepts and assessing your level of comfort with these concepts.
The Bigco pension plan has invested in dozens of VC funds. The director of pension plan is making his yearly report to the Bigco board of directors.
Board Bagels, a small cafe in downtown Pittsburgh, had a net sales of dollar 230,000 for the most recent fiscal year, 65 percent of which were eaten up by its expenses.
Consider a world where the assumptions of the Capital Asset Pricing Model hold. How are agency costs controlled in a "CAPM world?" and How can the financial markets reduce the total agency costs of the firm?
The Litton Corporation has established Standards as follows:
What is the industry average price-earnings ratio?
Is accrual basis superior to cash basis in meeting the economic decision-making needs of the users of financial statements? Why or why not?
In addition to the regular payments and how many more months we need to keep paying to amortize the loan.
Revenue stream and diversify their business GEI expanded into the higher margin business of consumer products - discuss a number of proposals that looked promising. In order to smooth their revenue stream and diversify their business GEI expanded in..
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