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Question: Midnight and Moonlight (M&M) Corporation's earnings before interest and taxes are $8,000,000 each year. The company currently has no debt, but is considering issuing $20,000,000 of debt with 10% interest payments. It will use the proceeds to buy back equity. M&M has a 100-percent payout policy. Assume that the corporate tax rate is 40% and that M&M's earnings and debt are perpetual.
a. Which plan offers the highest cash flows for investors?
b. Suppose the shareholders originally demand 12% return on equity. What is the value of the firm under each plan?
c. How has the return on equity changed under the plan with debt financing?
d. What is the new weighted average cost of capital?
Why should a business visualize long range goals and create a long range plan, instead of simply working through one annual plan and budget at a time?
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There are certainly pros and cons of going global. For example, with a physical product, the pros might include selling in more volume and the cons may include having to manage the process and logistics.
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Tammy is planning the purchase of a home entertainment center. The product attributes she plans to consider and weights she gives to them are as given:
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Find the 95 % confidence interval for mean calorie intake of all the male students in the school.
The firm's policy is to use a risk premium of 4percentage points when using the bond-yield-plus-risk-premiummethod to find ks. Flotation costs on new common stock totals 10percent, and the firm's marginal tax rate is 40 percent.
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