Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Firms A and B are identical except for their capital structure. A carries no debt, whereas B carries £200 of debt on which it pays 6% interest rate. Assume no transaction costs, no taxes, risk-free debt and perfect capital markets. The relevant numbers are provided in the following table:
A
B
Value of Firm
300(given)
400(given)
Debt
0(given)
200(given)
Equity
300
200
Earnings before interest
30(given)
Interest payment
0
12
Interest rate
Not Applicable(given)
6%(given)
Earnings after interest
30
18
Return on Equity
10%
9%
Debt/Equity Ratio
1
Cost of Capital
7.5%
i. To reduce the company's cost of capital, the management of Company A should start a programme of stock repurchases financed through the issue of new debt.
ii. To reduce the company's cost of capital, the management of Company B should issue equity to reduce its debt burden.
iii. Relative to Company B, Company A is undervalued.
iv. The situation described in the table is the result of capital markets equilibrium.
v. The situation described in the table violates Modigliani-Miller Proposition 1.
Evaluate what is the NPV of the investment when the cost of capital is 5% and what is the IRR of the investment?
What is the industry average price-earnings ratio?
One thousand bonds were issued five years ago at a coupon rate of 11%. They had 20-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 37%
While most financial professionals are very comfortable with the textbook computation, there are a few gray areas worthy of note because of their potential impact on capital budgeting decisions.
Consider a GNMA mortgage pool with principal of $20m. Its maturity is thirty years with a monthly mortgage payment of 10% per year. Suppose there is no prepayment.
Mark is planning forecasts of expected economic growth. He plans to invest $120,000 in an investment whose return would depend on the economic situations.
Corporate finance problems, 1. Marginal analysis and economic value added (EVA), Calculation of EPS and retained earnings, Financial statement preparation, Understanding financial statements
New Gate coporation desires to acquire Old Post in a nontaxable transaction. Prior to entering into the transaction with New Gate, Old Post issues $800,000 worth of 15-year bonds paying 6% annually.
If total assets increased $150,000 during the year and total liabilities decreased $80,000, what is the amount of stockholders" equity at the end of the year?
Calculation of financial ratios - Evaluate the following ten (10) financial ratios and provide a one sentence explanation of the analytic use of each ratio test. Show your formulas and input. Accuracy to two decimal points is sufficient.
Nachman just paid a dividend of $1.32. Analysts expect firm dividend to increase by 30 percent this year, by 10 percent in Year second, and at a constant rate of 5% in Year 3 and thereafter.
Computation of cost of capital ignoring the floatation costs - WACC and Find Coleman's overall, or weighted average, cost of capital (WACC)? Ignore flotation costs.
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd