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A company's assets will have a value, one year from now, equal to $45 millions if economic conditions are good or to $8 millions if the conditions are bad, the two scenarios are equally likely. The company currently has no debt and, after one year, it will terminate its operations. Today (1yr before termination of operations), the company has decided to go through with a recapitalisation issuing a zero coupon bond with face value of $10 millions and 1 yr maturity and buying back its own shares with the proceeds. The expected return required by bondholders is 5.45%. In case of bankruptcy there will be estimated direct costs of bankruptcy for $564,000 and indirect costs of bankruptcy for $789,000. The return on levered equity after the recapitalisation will be 15%. At the moment (before the recapitalisation) the company has 100,000 shares outstanding. Assume no taxation. A) What is the value of levered equity? B) What is the amount of money raised from bondholders when the bond is issued? C) How many shares will be bought back?
What is the value of a bond that matures in 30 years, makes an annual coupon payment of $100, and has a par value of $1000? Assume a required rate of return of 9%, and round your answer to the nearest $10
You just purchased a hom eand taken out a $410,000 mortgage. The mortgage has a 30 year term with monthly payments and an APR (with semi annual compounding) of 7.52%. How much will you pay in interest, and how much will you pay in principle, during ..
Van Dyke Corporation has a corporate tax rate equal to 30%.- What is Van Dyke's after-tax yield on the preferred stock?
Assume that a firm has a steady record of paying stable dividends for years. Market analysts had expected management to increase the dividend by 7.5% in the latest quarter. The market value of the stock rose 20% on the day of the announcement. Which ..
Start Up Plc is expected to pay a dividend of 4.75 per share at the end of year 1 and these dividends are expected to grow at a constant rate of 3.5% per year forever. If the required rate of return on the stock (and all stocks of the same risk class..
1. What is the present value of $ 815,400 deposited in 23 years if the rates of interest are 6 percent for the first six years, 7 percent for the next 6 and 8 percent for the remaining period?
In a tax less world with no brokerage coasts, repurchases and dividends have the same effect on shareholder wealth. In the real world, however, repurchases provide more preferable tax treatment than dividends to ordinary investors. Is it necessary fo..
The category of business combination where the firms have a supplier-customer relationship is known as a ___.
Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.00 million. Calculate the NPV of this investment and determine if the project should be rejected..
Outstanding debt of Home Depot trades with a yield to maturity of 8%. The tax rate of Home Depot is 35%. What is the effective cost of debt of Home Depot?
Davis, Inc., currently has an EPS of $2.16 and an earnings growth rate of 7 percent. The benchmark PE ratio is 20. What is the target share price in 7 years?
What is the price of a Treasury STRIPS with a face value of $100 that matures in 20 years and has a yield to maturity of 7.5 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
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