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The CIG Power Corporation expects to report earnings before interest and taxes of $25 million this year. Management has determined that the firm needs $10 million of new capital this year to fund its anticipated capital investments. One alternative is to borrow the funds from a syndicate of banks at a 15 percent rate of interest. Alternatively, CIG could sell $10 million of a new preferred stock that pays annual dividends of $1.4 million. The marginal tax rate for CIG is 40 percent.
a. What will be the "earnings after tax and available for common stockholders" if the money is borrowed?
b. What will be the "earnings after tax and available for common stockholders" if preferred stock is sold?
The Carlton Corporation has $6 million in earnings after taxes and 3 million shares outstanding. The stock trades at a P/E of 25. The firm has $5 million in excess cash. Compute the current price of the stock. What will the new earnings per share be?..
Snyder Co. is experiencing a period of rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next 2 years, at 13% in the third year, and at a constant rate of 6% thereafter. Snyder’s last dividend was $1.15, and the re..
Nancy Marchand purchased a put option on British pounds for $.04 per unit. The strike price was $1.80 and the spot rate at the time the pound option was exercised was $1.59. Assume there are 31,250 units in a British pound option. What was Nancy’s ne..
Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $190,000 (all on credit), and it earned a net profit of 6%. Its inventory turnover was 9.5 times during the y..
Bob invests $1000 for a certificate of deposit that pays 5 percent interest and is compounded annually. The certificate matures after 12 years. Calculate the total amount of interest accumulated after 12 years. How much interest will you earn if the ..
If you decide to invest in mutual funds, what types of funds will you select? Why?- Why might mutual funds be more appropriate investments for the Sampsons than individual stocks or bonds?
How do you estimate the required rate of return on a share of preferred stock if you know its market price and its dividend?
Assuming a discount rate of 12%, compute the net present value of each piece of equipment. Puro equipment: $ Briggs equipment:
You invested $ 10,000 in a mutual fund at the beginning of the year when the NAV was $ 32.24. At the end of the year the fund paid $ .24 in short-term distributions and $ .41 in long-term distributions. If the NAV of the fund at the end of the year w..
You are going to invest in a stock mutual fund with a 7 percent front-end load and a 1.35 percent expense ratio. You also can invest in a money market mutual fund with a 2.8 percent return and an expense ratio of .30 percent. If you plan to keep your..
An investment for $50,000 earns a rate of return of 1% in each month of a full year.- How much money will you have at year's end?
You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a fund of semiannual payments to be compounded semiannually to accumulate a sum of $310,000 after ten years at a 14 percent annual rate (20 payments..
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