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After reading all about the tax advantages of having a high leverage ratio, the CEO of LevCo is considering a leveraged recapitalization and wants to know the value of his firm subsequent to the recap. The firm currently has $27 million in assets and $12 million in debt and is interested in taking on an additional $9.5 million in debt. LevCo's debt yields 8% and is expected to remain at $21 M per year in perpetuity. LevCo is expected to produce unlevered cash flows next year of $2.8 million per year, growing at 3% annually.
LevCo's closest competitor, a pure-play firm in the same business as LevCo, has a debt-to-equity ratio of 0.5 and an equity beta of 1.25. Ten-year treasuries currently yield 2.3% and the expected return on the S&P 500 is 10.0% per annum. The marginal corporate tax rate is 40%.
Using the information above regarding LevCo and if you discount the interest tax shields at the unlevered cost of equity, what is the value of the enterprise (market value of assets) using the APV method? Enter your response in millions, rounded to two decimal places.
Suppose that the economy is already in a recession, & both the President and Congress have decided to do something to restore the economy.
During the period, the Far East sales office generated 669 orders for a total of 6,190 items. These orders were shipped in 1,450 boxes. What amount of shipping department costs should be allocated to these sales?
You have arranged for a loan on your new car that will require the first payment today. The loan is for $34,000, and the monthly payments are $645. If the loan will be paid off over the next 60 months, what is the APR of the loan?
why contingency planning is an important part of managing budgets and financial plans?
Project K costs $52,125. Its expected cash inflows are $21,000 per year for 8 years, and its WACC is 12%. What is the project's MIRR?
Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm's FCF for the year?
Computation of NPV using the given financial ratios and Show the adjustments for each problem individually and not a cumulative adjustment unless the question directs you to do so.
The expected return for security is 20 percent and standard deviation- 25.7 percent. Compute expected return and standard deviation for security A
Jiminy's Cricket Farm issued a 30-year, 6 percent, semiannual bond 8 years ago. The bond currently sells for 97 percent of its face value. What is the after-tax cost of debt if the company's tax rate is 32 percent? Answer
Using historical daily returns, you estimated the following Index model for ET incorporated: rET = .01% + 1.75 r S&P500
Assume the financial institutions are required to keep 11% in reserve and ratio of individuals' currency holdings to their deposits is 21%. What is money multiplier?
Foundations of Financial Management Edition 14
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