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Bruce & Co. expects its EBIT to be $80,000 every year forever. The company can borrow at 4 percent. The company currently has no debt, its cost of equity is 8 percent, and the tax rate is 35 percent. The company borrows $122,000 and uses the proceeds to repurchase shares.
What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity _____ %
What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC ____ %
Two investment advisors are comparing performance. Advisor A averaged a 20% return with a portfolio beta of 1.75 and Advisor B averaged a 15% return with a portfolio beta of 1.45. If the T-bill rate was 2% and the market return during the period was ..
What does the manufacturer hope to gain?
You own a small manufacturing plant that currently generates revenues of $2 million per year. Next year, based upon a decision on a long-term government contract, your revenues will either increase by 20% or decrease by 25%, with equal probability, a..
Your retirement fund consists of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.25. Suppose you sell one of the stocks with a beta of 1.0 for $7,500 and use the proceeds to buy another stock whose beta is 1.15. C..
Financing infrastructure projects entails a formidable set of risks. It is the role of the project finance advisor, the project sponsor and other participants to structure the financing in such a manner as to mitigate these risks. The project finance..
What is just-in-time (JIT) inventory system? What are the advantages and disadvantages of JIT systems?
Which one of the following characteristics best describes a project that has a low degree of operating leverage?
What is the purpose of the Government in the Sunshine Act? Was Fed Chairman Bernanke justified in evading the requirements of this act during the financial crisis of 2007-2009?
Make a good argument for keeping the statutory corporate tax rate in the United States the highest in the world and make a counter argument.
XYZ Corp. has equity beta 1.8 and market value of equity $230 million. The required return on XYZ’s debt is 7.8%. The market value of that debt is $250 million and the book value is $240 million. The risk-free rate is 6% and the expected return on th..
A partial balance sheet and income statement for King Corporation follow: The trade receivables at December 31, 2010, were $280,000, net of an allowance of $8,000, for a gross receivables figure of $288,000. The inventory at December 31, 2010, was $5..
Janet Gilbert is director of a lab. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has recently had a study conducted and has determined that her costs for these contracts are ..
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