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Company ABC has an optimal capital structure of 40% debt and 60% common equity. Assume that the debt break points occur at $36 million and $50 million, and that the common equity break point occurs at $45 million. The after tax cost of debt is 6%, 10%, and 14% as borrowing increases, and the cost of common equity is 15% if using retained earnings and 20% if using newly issued common stock. Prepare the marginal cost of capital schedule.
Your program has a research and development project scheduled to start in January 2017 which is expected to take 40 months to complete. The project is expected to cost a total of $150 million (then-year dollars), with cost expected to be incurred as ..
You are interested in purchasing enough number of shares in SMITH Chemical Inc. so that you can be guaranteed a seat on the board of directors when the next annual shareholder’s meeting is held. Calculate the dividends the company will pay during yea..
Assume you are to receive a 30-year annuity with annual payments of $100. The first payment will be received at the end of Year 1, and the last payment will be received at the end of year 25. You will invest each payment in an account that pays 5.5 p..
The contract size for platinum futures is 50 troy ounces. Suppose you need 500 troy ounces of platinum and the current futures price is $1,265 per ounce. How many contracts do you need to purchase? How much will you pay for your platinum? What is you..
(Weighted average cost of capital) In the spring of last year, Tempe Steel learned that the firm would need to re-evaluate the company's weighted average cost of capital following a significant issue of debt. The firm now has financed 43 percent of i..
Mullen Company reports in its 2014 10-K, sales of $83 million, long-term debt of $9 million, and interest expense of $720,000. If sales are projected to increase by 5.2% next year, projected interest expense for 2014 will be
We Do Bankruptcies is a law firm that specializes in providing advice to firms in financial distress. It prospers in recessions when other firms are struggling. Consequently, its beta is negative, −.3. If the interest rate on Treasury bills is 7% and..
You have been assigned a research project for a new client on the issue of tax compliance. The research results for the client fall under a temporary regulation. Evaluate and describe two (2) types of temporary regulations and explore the effects on ..
A project has the following cash flows: Year Cash Flow 0 $ 40,500 1 – 19,500 2 – 30,500 What is the IRR for this project? (Round your answer to 2 decimal places. (e.g., 32.16)) IRR % What is the NPV of this project, if the required return is 10 perce..
Which of the following will NOT increase equity returns in an LBO?
bond has a $1,000 par value, 12 years to maturity, and a 8% annual coupon and sells for $980. What is its yield to maturity (YTM)? Assume that the yield to maturity remains constant for the next 3 years. What will the price be 3 years from today? Rou..
Three years ago, James Matheson bought 340 shares of a mutual fund for $23 a share. During the three-year period, he received total income dividends of 0.68 per share. He also received total capital gain distributions of $1.65 per share. At the end o..
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