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- Harris International currently pays a dividend of $3.24 per share on its preferred stock that sells for $54 per share. In order to raise capital to purchase a smaller competitor, the company plans to issue 2.7 million shares of preferred stock at a 10% discount to its current price. Determine (a) the amount of funding that Harris will realize through the stock offering, and (b) the cost of equity financing.Omicron Technologies made a before-tax profit of $50 million this year. The firm has no debt and 10 million shares outstanding, with a current market price of $45 per share. Its unlevered cost of capital is 10%. Omicron's board is meeting to decide whether to pay out the entire $50 million as a dividend or to use it to repurchase shares of the firm's stock in the open market. If Omicron uses the entire $50 million to pay a dividend today, what is Omicron’s ex-dividend price of the shares in a perfect capital market with no taxes? Suppose that Omicron’s board decides to pay a dividend today. Now assume that Omicron pays corporate taxes of 30%. The marginal tax rate for shareholders is 35%. What is the after-tax dividend and effective tax rate for shareholders: Under a classical tax system? Under an imputation system (assuming that the dividend is 70% franked)? If Omicron instead chooses to use the entire $50 million to repurchase shares, what is the number of…Your company has an opportunity to invest in a project that is expected to result in after-tax cash flows of $13,000 the first year, $15,000 the second year, $18,000 the third year, -$8,000 the fourth year, $25,000 the fifth year, $31,000 the sixth year, $34,000 the seventh year, and -$6,000 the eighth year. The project would cost the firm $67,100. If the firm's cost of capital is 12%, what is the modified internal rate of return?
- The estimated beta (/3) of a firm is 1.7. The market return (rm) is 14 %, and the risk-free rate (r1) is 7%. Estimate the cost of equity (ie).What process does the net present value method use to help management determine whether a project is acceptable to a company? Options : A. It discounts net cash flows to their present value and then compares that value to the capital outlay required by the project.B. It determines the interest rate that will cause the present value of the capital expenditure to equal the present value of the expected net cash flows.C. It divides the present value of net cash flows by the initial investment to determine the profitability index of the project.D. It identifies the time period required to recover the cost of the capital investment from the net annual cash flow produced by the project.For each of the following factors, state if it will raise or lower the MARR: (a) Higher risk (b) Company wants to expand into a competitor’s area (c) Higher corporate taxes (d) Limited availability of capital (e) Increased market interest rates ( f ) Government imposition of price controls
- Super Tennis Co is in the business of designing and manufacturing running shoes for long distance runners. They are considering a $500 million upgrade to their production line for the iPhone/iPad/ iWatch connected shoe that has Bluetooth connectivity. The potential cash flow is estimated at net revenues of $460 million per year for four years. Recently, they were advised of potential patent infringement and to eliminate this problem they are considering buying a license. YezzCo will sell a license that is good for four years of exclusive use of the patent and associated intellectual property. Super Tennis Co uses a corporate MARR of 14% and their risk-free alternatives are 6%. The VP of Engineering at Super Tennis Co estimates market volatility in demand is 40%. The VP of Marketing estimates market volatility in demand at 35%. 1.Since the VPAc€?cs trust you, they asked you to figure out the most they should pay for a license from YezzCo. 2. Super Tennis Co is known to be liberal in…The capital budget of Creative Ventures Inc. is $1,000,000. The company wants to maintain a target capital structure that is 30% debt and 70% equity. The company forecasts that its net income this year will be $800,000. If the company follows a residual dividend policy, what will be its total dividend payment?A hypothetical wind turbine takes one year to build and costs 1.5 million TL. The operating and maintenance costs are 300,000 TL per year which increases by 2 % each year. The wind turbine’s lifespan is 10 years, and it is estimated to produce 3 million kWhe each year. The associated discount rate for the project is 8 %. What is the levelized cost of electricity for this project?
- G&M Motors is currently an all equity financed firm. It expects to generate EBIT of $30 million over the next year. Assume that G&M Motors’ EBIT is not expected to grow in the future and that all earnings are paid out as dividends. Currently G&M has 10 million shares outstanding and its stock is trading at $40.00 per share. G&M is considering changing its capital structure by borrowing $100 million at an interest rate of 2% and using the proceeds to repurchase shares at its current price ($40.00 per share). Assume perfect capital markets. After the re-capitalisation, G&M ʹs earnings per share (EPS) and the equity cost of capital are closest to: A. $2.90 and 14.55% B. $3 and 7.5% C. $3.73 and 9.3% D. $2.8 and 10.8%Consider the investment project with the net cash flows as shown in the following table. What would be the value of X if the project's IRR is 23%? (a) $4,500(b)$4,750(c) $6,890(d)$6,500Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. It is considering the "weight loss" smoothies project. The project would require a $4 million investment outlay today The after-tax cash flows would depend on consumers’ demand. There is a 30% chance that demand will be good, and the project will produce after-tax cash flows of $2 million at the end of each year for the next 3 years. There is a 70% chance that demand will be poor, and the project will produce after-tax cash flows of $1 million at the end of each year for the next 3 years. The project is riskier than the firm's other projects, so it has a WACC of 12%. - The firm will know whether the project is success or not after receiving first year's cash flows from normal operating.. - After receiving the first year's cash flows (no matter what receive $1M or $2M in the first year), the firm will have the option to abandon the project. - If the firm decides to abandon the project, the company will no longer…