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In early 2009 Giant Inc.'s management was considering making an offer to buy Micro Corporation. Micro's projected operating income (EBIT) for 2009 was $30 million, but Giant believes that if the two firms were merged, it could consolidate some operations, reduce Micro's expenses, and raise its EBIT to $35 million. Neither company uses any debt, nor do they both pay income taxes at a 35% rate. Giant has a better reputation among investors, who regard it as very well managed and not very risky, so its stock has a P/E ratio of 10.25 versus a P/E of 9 for Micro.
Since Giant's management would be running the entire enterprise after a merger, investors would value the resulting corporation based on Giant's P/E. If Micro has 10 million shares outstanding, by how much should the merger increase its share price, assuming all of the synergy will go to its stockholders?
Schweser Satellites Corporation manufactures satellite earth stations that sell for $100,000 each. The company's fixed costs, F, are $2 million; 50 earth stations are produced and sold every year;
Medco Company can sell preferred stock for $80 with an estimated flotation expense of $3. It is anticipated that the preferred stock will pay $6 per share in dividends.
jiminy's Cricket Farm issued a 30-year, 7.6 percent semiannual bond 6 years ago. The bond currently sells for 92.5 percent of its face value. The company's tax rate is 38 percent. What is the pretax cost of debt?
kim davis is in the 40 percent tax bracket she is considering investing in hca taxable bonds that carry a 12 percent
During December, Acme, Inc., performed and billed its customers $38,000 for services on account of which it collected $8,000. How much revenue should Acme record in December?
Security returns are found to be less correlated across countries than within a country. Why can this be?
Computation of price of the bond and The market requires an interest rate of 8% on bonds of this risk
You want to do a Country Risk Assessment for Iran for the current year to decide whether you should operate a Franchise there. Explain how you would proceed. What data would you need; How would you use them?
CAPM is one of the more popular models for determining the risk premium on a stock. If the Expected Return on the Stock is 20.38 percent, the Risk-Free Rate is 9.0 percent, and the Beta for Stock i is 1.75. Find the Expected Return on the market u..
Stinging Pesticides, corporation, provides scorpion control services, to residential and business customers in the El Paso area. The corporation recently raised its service price from $70 to $80 per yearly treatment.
Describe the role of the financial institutions and financial markets in our economy
What is the weighted average flotation cost if the company finances new assets using new debt, new shares of preferred stock, and Retained Earnings?
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