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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 6%. Harrison estimates that if it acquires Van Buren, the year-end dividend will remain at $1.90 a share, but synergies will enable the dividend to grow at a constant rate of 8% a year (instead of the current 6%). Harrison also plans to increase the debt ratio of what would be its Van Buren subsidiary - the effect of this would be to raise Van Buren's beta to 1.2. What is the per-share value of Van Buren to Harrison Corporation? Round your answer to the nearest cent.
Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $120,000 (all on credit), and it earned a net profit of 7%. What would Strickler's ROA have been if the inven..
Brooks Corp. shows the following information on its 2014 income statement: sales=$185,000; costs=$98,000; other expense=$6,700; depreciation=$16,500; interest expense=$9,000; taxes=$19,180; dividends=$9,500. In addition, 1) What is the average tax ra..
Max is thinking about purchasing a house. He wishes his annual payments to be 25% of his salary. The following table lists his expected salary over the next 30 years. How much is Max willing to borrow for his house? Assume he can find a loan that mat..
The firm’s global competitiveness is mainly dependent on:
Five years ago, Cayman’s Crafters, Inc. issued new 25 year convertible bonds with a 4% coupon rate, compounded semi-annually. The bond has a par value of 10,000. The market’s required rate of return on similar securities at the time of issuance was 3..
What does it mean to say that a report you are writing contains several logical fallacies?
Which of the following statements is true about the future value of an investment? The shorter the time period that funds are invested, the greater the future value. The lower the discount rate that funds are invested at, the greater the future value..
Dakota Chemical Inc's dividend yield is 2%. The company pays an 8% interest rate on loans. Dakota is estimating its cost of capital. Can we use 8% as the c?ost of capital? Why or why not? Do you conclude that the cost of equity is lower than the cost..
Consider two mutually exclusive projects with the following cash flows: Project S is a 4 year project with initial (time 0) cash outflow of 3000 and time 1 through 4 cash inflows of 1500, 1200, 800 and 300 respectively. Project L is a 4 year project ..
Prepare a classified balance sheet at December 31, 2015 - The investment in Sasse common stock is considered to be a long-term available-for-sale security.
A bond matures in 30 years, has a 20 year duration and a yield to maturity of 9.32%. The change in the level of the market interest rate is 0.47%. What is the modified duration and the percentage change in price? What is the tax-equivalent yield of a..
Would you argue that the cost of equity should be zero? After all, we can determine our own dividend policy. The amount of earnings we choose to keep in the business (i.e., retained earnings after paying dividends) is "free", right?
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