Q: An outstanding issue of Public Express Airlines debentures has a call provision
An outstanding issue of Public Express Airlines debentures has a call provision attached. The total principal value of the bonds is $250 million, and the bonds have an annual coupon rate of 9 percent....
See AnswerQ: ABC Co. and XYZ Co. are identical firms in all
ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $750,000 in stock. XYZ uses both stock and perpetual debt; its stock is wort...
See AnswerQ: When personal taxes on interest income and bankruptcy costs are considered,
When personal taxes on interest income and bankruptcy costs are considered, the general expression for the value of a levered firm in a world in which the tax rate on equity distributions equals zero...
See AnswerQ: New equity issues are generally only a small portion of all new
New equity issues are generally only a small portion of all new issues. At the same time, companies continue to issue new debt. Why do companies tend to issue little new equity but continue to issue n...
See AnswerQ: Janetta Corp. has an EBIT rate of $975,000
Janetta Corp. has an EBIT rate of $975,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 14 percent, and the corporate tax rate is 35 percent. Th...
See AnswerQ: Continental Airlines once filed for bankruptcy, at least in part,
Continental Airlines once filed for bankruptcy, at least in part, as a means of reducing labor costs. Whether this move was ethical or proper was hotly debated. Give both sides of the argument.
See AnswerQ: Overnight Publishing Company (OPC) has $2.5 million
Overnight Publishing Company (OPC) has $2.5 million in excess cash. The firm plans to use this cash either to retire all of its outstanding debt or to repurchase equity. The firm’s debt is held by one...
See AnswerQ: Charles River Associates is considering whether to call either of the two
Charles River Associates is considering whether to call either of the two perpetual bond issues the company currently has outstanding. If the bond is called, it will be refunded, that is, a new bond i...
See AnswerQ: Nina Corp. uses no debt. The weighted average cost of
Nina Corp. uses no debt. The weighted average cost of capital is 9 percent. If the current market value of the equity is $37 million and there are no taxes, what is EBIT? Suppose the corporate tax ra...
See AnswerQ: Consider the prices of the following three Treasury issues as of February
Consider the prices of the following three Treasury issues as of February 24, 2012: The bond in the middle is callable in February 2013. What is the implied value of the call feature? (there a way t...
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