Reference no: EM132907693
Rahm Robotics Inc (RRI) is considering a large investment of $20,000,000 in a new project. The company currently has $15,000,000 of 6% coupon bonds and 2,000,000 common shares outstanding. The tax rate is 40%. Discussions with an investment banker have assured the firm that the following options are feasible:
Option 1: Sell $20,000,000 worth of common stock at $50 per share.
Option 2: Issue $10,000,000 worth of 8% coupon bonds with a 30-year maturity, in addition to $10,000,000 worth of common stock at $50 per share.
Problem a) Calculate the EBIT indifference point for the 2 options.
Problem b) What is the EPS at the EBIT indifference point? At EBIT levels above the EBIT indifference point, which plan would you favour?
|
Explain the concept of coupon bond yields
: Explain the concept of Coupon bond yields and its pricing behavior. Discuss the 'Term Structure of Interest Rates' and how it related to the Yield Curve
|
|
Calculate a critical value for a goodness of fit test
: We want to calculate a critical value for a Goodness of Fit test based on the Kolmogorov-Smirnov test for an exponential distribution.
|
|
Correlation does not mean causation
: A major misconception about correlation is that it implies a causal relationship between two variables. In other words, one may be tempted to conclude that one
|
|
Draw a relative frequency histogram with seven classes
: The ages of a sample of fans at a rock concert are listed. 24, 27, 19, 21, 18, 23, 21, 20, 19, 33, 30, 29, 21, 18, 24, 26, 38, 19, 35, 34, 33, 30, 21, 27, 30
|
|
What is the eps at the ebit indifference point
: What is the EPS at the EBIT indifference point? At EBIT levels above the EBIT indifference point, which plan would you favour?
|
|
Is the MNC you selected most exposed to particular currency
: Is the MNC you selected most exposed to a particular currency? If so, how would depreciation of that currency against the dollar affect the value of the MNC
|
|
Are the data categorical or quantitative
: A sample of 20 adults was asked to report the number of hours they spent on the internet the previous week. The results are listed here.
|
|
Change management within projects
: Choose a journal article related to change management within projects (do not re-use a journal from a prior course).
|
|
What is the company weighted average cost of capital
: What is the company's weighted average cost of capital? Wave Exteriors Inc. has an unlevered cost of equity is 12% and a pre-tax cost of debt of 6%.
|