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The NEWT Company is located in a country where there are no taxes and there are perfect capital markets so that there are no bankruptcy costs. The corporation currently has $25 million in debt outstanding and the value of its equity is $75 million. The return on its equity is 15% and the return on its debt which is currently risk free is 8%. Suppose NEWT decides to issue $15 million additional debt and use it to repurchase $15 million of equity. The new debt is expected to be risk free after the issue. All the debt, both before and after the refin ancing, consists of perpetuities.
(a) What is the total value of the firm after the refinancing?
(b) What would the return on the equity be after the refinancing
A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. If the yield to maturity remains at its current rate, what will the price be 5 years from now?
Ghost Rider Corporation has bonds on the market with 10 years to maturity, a YTM of 6.5 percent, and a current price of $926. What must the coupon rate be on the company’s bonds? (Do not round intermediate calculations. Enter your answer as a percent..
Hugh Brokett’s Insurance provides the following data (EBIT is Earnings Before Interest and Taxes). It’s assets are currently 100% equity financed (no debt). What is Hugh Brokett’s current ROE? If they replace 60% of the Equity with debt financing, at..
Between December 31, 2016 and December 31, 2017, annual sales of Bobcat Industries went from $32,000,000 to $48,000,000. EBIT went from $3,000,000 to $4,600,000. Net income went from $1,500,000 to $2,200,000. Management has asked you to comment
Prepare a Statement of Activities using the format presented and prepare a Statement of Unrestricted Revenues, Expenses, and Other Changes in Unrestricted Net Assets together with a Statement of Changes in Net assets.
On June 1, you borrowed $195,000 to buy a house. The mortgage rate is 2.5%. The loan is to be repaid in equal monthly payments over 15 years. All taxes and insurance premiums are to be paid separately. What would be your monthly payment?
firm a stated rate of 10 percent interest. What is the effective rate of interest if the loan carries a simple 10 percent interest with a 20 percent compensating balance
At the end of the year 2004 the Office Equipment Industry had free cash flow to equity (FCFE) of $2.50 per share. The following annual growth rates in FCFE are projected: Calculate the required rate of return on equity. Calculate the present value no..
brown ltd operates outdoor amusement centres in a number of country towns. the company has decided to build another
The impact of major eents from the recent financial crisis on credit default swaps
You are considering purchasing a new truck that will cost you $34,000. The dealer offers you 1.9% APR financing for 48 months (with payments made at the end of the month). Assuming you finance the entire $34,000 and finance through the dealer, your m..
Cooke Co. is comparing two different capital structures. Plan I would result in 8,700 shares of stock and $323,000 in debt. Plan II would result in 12,000 shares of stock and $210,800 in debt. What is the price per share of equity under Plan I?
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