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BigCo is interested in acquiring PrivCo, whose owner desires to retire. The firm is 100% owned by the current owner. PrivCo has revenues of $10 million and an EBIT of $2 million in the preceding year. The market value of the firm's debt is $5 million; the book value of equity is $4 million. For publicly traded firms in the same industry, the average debt-to-equity ratio is .4 (based on the market value of debt and equity), and the marginal tax rate is 40%. Typically, the ratio of the market value of equity to book value for these firms is 2. The average beta of publicly traded firms that are in the same business is 2.00. Capital expenditures and depreciation amounted to $0.3 million and $0.2 million in the prior year. Both items are expected to grow at the same rate as revenues for the next 5 years. Capital expenditures and depreciation are expected to be equal beyond 5 years (i.e., capital spending will be internally funded). As a result of excellent working capital management practices, the change in working capital is expected to be essentially zero throughout the forecast period and beyond. The revenues of this firm are expected to grow 15% annually for the next 5 years and 5% per year thereafter. Net income is expected to increase 15% a year for the next 5 years and 5% thereafter. The 10-year U.S. Treasury bond rate is 6%. The pretax cost of debt for a similar nonrated firm is 10%. No adjustment is made in the calculation of the cost of equity for a marketability discount. What is the shareholder value of the firm?
If the firm follows the residual dividend policy, what is the maximum capital budget that is consistent with maintaining the target capital structure?
Be specific, thus I want you to look up current options for Duke Power and tell me which option you would choose, why, and how much you would pay/receive.
The company has current liabilities of $43,000 and net working capital of $32,000. What is the total book value of the assets of Alfonzo's Pizzeria?
DebtThe firm can sell for $980 a 10-year, $1,000-par-value bond paying annual interest at a 10% coupon rate. A flotation cost of 3% of the par value is required in addition to the discount of $20 per bond.
Armando is buying a car that costs $30,000.00 He is using a 10% down payment, and financing the remainder at 6.9% interest for 7 years. The car value drops 30% the first year, and 20% each year after.
Hart Enterprises recently paid a dividend, D0, of $4.00. It expects to have nonconstant growth of 14% for 2 years followed by a constant rate of 7% thereafter. The firm's required return is 14%.
The newspaper reported last week that the Lowery Enterprise earned a net income of $30 million last year. The report also stated that the firm's total equity was $200 million. Lowery Enterprise retains 40% of its net income.
Consider the following annual sales data for 2003-2010, use the linear regression method and determine the regression equation that yields an estimated sales forecast.
Computation of Internal Rate of Return and The system will be depreciated straight-line to zero over its 5-year life
Prepare the journal entries to record the sales, cash collections and recognition of gross profit only if appropritate in the years 2010, and 2011.
Discuss and explain the situations under which financial leverage is beneficial vs. when it is harmful. Is there a point at which it is beneficial from some stakeholders' point of view but not beneficial from other stakeholders view point?
An American firm sells yen futures contracts to cover possible exchange losses on its export orders denominated in Japanese yen. Amount of the initial margin is $20,000.
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