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To finance its ongoing construction project, Bowen-Roth Inc. will need $5,000,000 of new capital during each of the next 3 years. The firm has a choice of issuing new debt or equity each year as the funds are needed, or issue only debt now and equity later. Its target capital structure is 40% debt and 60% equity, and it wants to be at that structure in 3 years, when the project has been completed. Debt flotation costs for a single debt issue would be 1.6% of the gross debt proceeds. Yearly flotation costs for 3 separate issues of debt would be 3.0% of the gross amount. Ignoring time value effects, how much would the firm save by raising all of the debt now, in a single issue, rather than in 3 separate issues?
$79,425
$83,606
$88,006
$92,406
You have just purchased a five- year maturity bond for $ 10,000 par value that pays $ 610 in coupon interest annually ($ 305 every six months). You expect to hold the bond until maturity. Calculate your expected total return if you can reinvest all c..
United Enterprises paid $12,000 in dividends and $21,300 in interest over the past year. Sales totalled $139,700 with costs of $101,400. The depreciation expense was $10,500. The applicable tax rate is 34 percent. What is the amount of the operating ..
Lohn Corporation is expected to pay the following dividends over the next four years: $17, $13, $12, and $7.50. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 1..
If a company decides to increase its ratio of total debt / total assets from 30% to 50% as a means of increasing its return on equity (ROE), and it is able to maintain a 4.5% return on assets(ROA), what will be the new return on equity (ROE) after it..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.55 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. If the yield to maturity is 8.1 percent, what is the current price of the bond?
Star Light & Power increases its dividend 2.9 percent per year every year. This utility is valued using a discount rate of 9 percent, and the stock currently sells for $52 per share. If you buy a share of stock today and hold on to it for at least th..
Calculate the expected return of portfolio
A 6.65 percent coupon bond with fifteen years left to maturity is priced to offer a 8.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 8.0 percent. What is the change in price the bond will experience in dollar..
You are considering a property that is leased for 4 years. As the lessor you would recieve the following cash flows (at the end of each year): $17,800 in Year 1, $19,000 in Year 2, $12,500 in Year 3, and $10,000 in Year 4. At the end of the period yo..
Cheesburger and Taco Company purchases 6,441 boxes of cheese each year. It costs $27 to place and ship each order and $9.92 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders.
Clapper Industries reported taxable income of $290,000. What is Clapper’s marginal tax rate based on the corporate tax rate table in this appendix? What is Clapper’s average tax rate? If Clapper’s taxable income increases to $410,000, what will be Cl..
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