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Seattle Health Plans currently uses zero debt financing. Its operating profit is $1 million, and it pays taxes at 40 percent rate. It has $5 million in equity. Suppose the firm is considering replacing half of its equity financing that bears an interest rate of 8 percent.
What impact would the new capital structure have on the firm’s profit, total dollar return to investors, and return on equity?
Redo the analysis, but now assume that the debt financing would cost 15 percent.
Repeat the analysis required for Part a, but now assume that Seattle Health Plans is not-for-profit corporation and hence pays no taxes. Compare the results with those obtained in Part a.
This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $20,000 for one year. The interest rate is 12.5 percent.
Present value of a perpetuity. What is the present value of a $400 perpetuity if the interest rate is 6%? Round your answer to the nearest cent.
Explain how simulation works. What is the value in using a simulation approach and what is sensitivity analysis and what is its purpose?
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Create an Excel spreadsheet detailing the cost of each scenario, and embed it into a Word document. Provide your recommendations in the Word document as well.
the final project for this module is a consultancy report to anthonys orchard an expanding apple orchard and
A Treasury bill that settles on May 18, 2012, pays $100,000 on August 21, 2012. Assuming a discount rate of 5.41 percent, what is the price and bond equivalent yield? Use Excel to answer this question.
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You will receive $7,500 three years from now. The discount rate is 12 percent. What is the value of your investment one year from now?
Four years ago, Bling Diamond, Inc., paid a dividend of $1.95 per share. Bling paid a dividend of $2.37 per share yesterday. Dividends will grow over the next five years at the same rate they grew over the last four years. Thereafter, dividends will ..
Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 3% and the market risk premium is 4%. Van Buren currently expects to pay a year-end dividend of $1.65 a share (D1 = $1.65). Van Buren..
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