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Question 1 : In 1998, when UST Inc. announced its $1 billion levered recapitalization, its business was growing more mature. Indeed, its unsuccessful attempts to diversify into other sectors seemed to suggest a lack of profitable investment opportunities. Based on this, can you think of any (agency-related) benefit associated with UST's levered recap?
Question 2 : You are valuing a levered firm that would face non-negligible costs in case of default. The firm plans to reduce its debt level according to a fixed schedule for the next 5 years, and then to keep it stable afterwards. Which DCF valuation method would you opt for, the WACC or the APV method? Motivate your answer.
Question 3 : Why should firms have a pecking order of financing sources when managers have more information about the firms they run with respect to financiers? In answering the question, explain why debt is referred to as a less information-intensive security than equity.
What are the earnings per share at the break-even level of earnings before interest and taxes?
Which of the following embedded options is most likely to increase the cost of borrowing for the issuer:
You are considering the purchase of a share of Alfa Growth, Inc. common stock.
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.9 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected..
Required Return If the risk-free rate is 9.5 percent and the market risk premium is 5.0 percent, what is the required return for the market?
Pension funds have fewer liquidity problems than depositories because. An active management strategy in which money managers try to make timely movements among stocks, bonds, and cash based on complex quantitative models is called. Mortgage-backed se..
Duke Energy has recently issued a bond with the following characteristics: maturity: 20 years, coupon rate: 8% (paid semi-annually), face value: $1000. Your investment advisor has told you that the yield-to-maturity on this bond is 7.5%. What should ..
Northern Specialties just purchased inventory-management computer software at a cost of $1,578,950.
Ward Corp. is expected to have an EBIT of $1,950,000 next year. What is the price per share of the company's stock?
What is the difference between present value of annuity due and equivalent annual annuity.
Kennedy Air Services is now in the final year of a project. The equipment originally cost $30 million, of which 90% has been depreciated. Kennedy can sell the used equipment today for $7.5 million, and its tax rate is 35%. What is the equipment's aft..
Investors expect the market rate of return this year to be 11.50%. How would you revise your expectation of the rate of return on the stock?
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