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Suppose there are two firms with the same perpetual cash flow, EBIT = $1500. The firms are identical except for their capital structure. Firm U is unlevered and Firm L is levered with a perpetual debt. The current values of the firm are Vu = $15,000 and VL = $19,000. The current value of debt is D = $10,000. Corporate tax rate, t = 35%, and cost of debt, Rd = 5%. Is there an arbitrage opportunity? If so, how would you exploit it? Assume tax is the only imperfection.
A bond for Firebird, Inc. has a coupon rate of 7% and face value of K1000, 000. The yield to maturity is 6.8%. The bond has a remaining life of 30 years and makes annual coupon payments? What is this bond's current market value?
The disadvantages of debt to the corporation include all but which of the following?
We Cheat U Loans offer to loan you $6,000 at 6% simple interest for a five-year period. In order to make it easier for you to pay, they take each year’s interest of $360 and add it to the $6,000 principal to get $7,800 ($6,000 + 5 x $360).
A 40-year-old individual establishes a retirement account that is expected to earn 7 percent annually. Contributions will be $2,000 annually at the beginning of each year. Initially, the saver expects to start drawing on the account at age 60.
cost of goods sold, $450,000 in operating expenses (including a depreciation expense of $150,000), with a tax liability equal to 35% of the firm's taxable income. What is the net income of the firm for the year?
weighted average cost of capital evaluate 2012 financial statements and other financial data example beta for
Explain, in your own words, when and how the composition of capital (the mix of debt and equity) does not affect the value of the firm and Discuss this statement: leverage gives the illusion of higher returns.
Explain how each amount in the flexible budget was calculated. (Hint Examine the static budget to determine the relationship of each bud get line to volume.)
Ballack Co.’s common stock currently sells for $49.00 per share. The growth rate is a constant 11.2%, and the company has an expected dividend yield of 6%. The expected long-run dividend payout ratio is 20%, and the expected return on equity (ROE) is..
Security F has an expected return of 10.9% and a standard deviation of 24% per year. Security G has an expected return of 18.1% and a standard deviation of 63% per year.
The key condition for equilibrium to occur in a market is: Without taxes, the market price per bag of apples is $5. With a $2 tax per bag of apples, buyers now pay $5.75 per bag. What is the final price per bag of apples received by sellers?
Determine the number of units of product K to be manufactured in May and compute the May cash outlay for purchases of raw material A.
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