Questions from Corporate Finance

Q: Pelamed Pharmaceuticals had EBIT of $325 million in 2010. In

Pelamed Pharmaceuticals had EBIT of $325 million in 2010. In addition, Pelamed had interest expenses of $125 million and a corporate tax rate of 40%. a. What was Pelamed’s 2010 net income? b. What was...

Q: Grommit Engineering expects to have net income next year of $20

Grommit Engineering expects to have net income next year of $20.75 million and free cash flow of $22.15 million. Grommit’s marginal corporate tax rate is 35%. a. If Grommit increases leverage so that...

Q: Assume that Microsoft has a total market value of $300 billion

Assume that Microsoft has a total market value of $300 billion and a marginal tax rate of 35%. If it permanently changes its leverage from no debt by taking on new debt in the amount of 13% of its cur...

Q: The HNH Corporation will pay a constant dividend of $2 per

The HNH Corporation will pay a constant dividend of $2 per share, per year, in perpetuity. Assume all investors pay a 20% tax on dividends and that there is no capital gains tax. The cost of capital f...

Q: Consider a firm whose only asset is a plot of vacant land

Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $15 million due in one year. If left vacant, the land will be worth $10 million in one year. Alternativel...

Q: Zymase is a biotechnology start-up firm. Researchers at Zymase

Zymase is a biotechnology start-up firm. Researchers at Zymase must choose one of three different research strategies. The payoffs (after taxes) and their likelihood for each strategy are shown below....

Q: You own a firm, and you want to raise $30

You own a firm, and you want to raise $30 million to fund an expansion. Currently, you own 100% of the firm’s equity, and the firm has no debt. To raise the $30 million solely through equity, you will...

Q: Empire Industries forecasts net income this coming year as shown below (

Empire Industries forecasts net income this coming year as shown below (in thousands of dollars): Approximately $200,000 of Empire’s earnings will be needed to make new, positive-NP...

Q: Your firm currently has $100 million in debt outstanding with a

Your firm currently has $100 million in debt outstanding with a 10% interest rate. The terms of the loan require the firm to repay $25 million of the balance each year. Suppose that the marginal corpo...

Q: Info Systems Technology (IST) manufactures microprocessor chips for use in

Info Systems Technology (IST) manufactures microprocessor chips for use in appliances and other applications. IST has no debt and 100 million shares outstanding. The correct price for these shares is...