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Dabney Electronics currently has no debt. Its operating income (EBIT) is $20 million and its tax rate is 40 percent. It pays out all of its net income as dividends and has a zero growth rate. It has 2.5 million shares of stock outstanding. If it moves to a capital structure that has 40 percent debt and 60 percent equity (based on market values), its investment bankers believe its weighted average cost of capital would be 8 percent. What would its stock price be immediately after issuing debt if it changes to the new capital structure?
(Hint: Find value of the firm after capitalization using Va = FCF1/(WACC-g), and then calculate price of the stock using P0 = [S + (D – D0) ] / n0)
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Assume that in January 2013, the average house price in a particular area was $285,400. In January 2002, the average price was $202,300. What was the annual increase in selling price?
An individual presently owns an oil lease. The payments from this lease beginning at the end of this year are $10,000, decreasing at the rate of 5% each year. There are 15 annual payments to be received over the life of the lease. An investor offers ..
A treasury manager is in the process of developing cash transfer rules for the firm. Currently, the firm's bank charges $15 per wire and $0.30 per ACH. The ACH takes 1 day longer to clear. The firm's account earns an earnings credit rate of 0.50%, an..
A bond that settles on June 7, 2013, matures on July 1, 2033, and may be called at any time after July 1, 2023, at a price of 141. The coupon rate on the bond is 6.6 percent and the price is 155.50. What is the yield to maturity and yield to call on ..
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