Questions from Corporate Finance

Q: The Woods Co. and the Mickelson Co. have both announced

The Woods Co. and the Mickelson Co. have both announced IPOs at $40 per share. One of these is undervalued by $7, and the other is overvalued by $5, but you have no way of knowing which is which. You...

Q: The Educated Horses Corporation needs to raise $60 million to

The Educated Horses Corporation needs to raise $60 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds....

Q: You have $10,000 to invest in a stock portfolio. Your

You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 10.5 percent. If your goal is to create a portfol...

Q: In the previous problem, if the SEC fi ling fee

In the previous problem, if the SEC fi ling fee and associated administrative expenses of the offering are $900,000, how many shares need to be sold?Previous problem:The Educated Horses Corporation ne...

Q: The Raven Co. has just gone public. Under a firm

The Raven Co. has just gone public. Under a firm commitment agreement, Raven received $18.20 for each of the 10 million shares sold. The initial offering price was $20 per share, and the stock rose to...

Q: Left Turn, Inc., has 120,000 shares of stock outstanding. Each

Left Turn, Inc., has 120,000 shares of stock outstanding. Each share is worth $94, so the company’s market value of equity is $11,280,000. Suppose the firm issues 25,000 new shares at the following pr...

Q: Maynard, Inc., has no debt outstanding and a total market

Maynard, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong...

Q: Wood Corp. uses no debt. The weighted average cost of

Wood Corp. uses no debt. The weighted average cost of capital is 9 percent. If the current market value of the equity is $23 million and there are no taxes, what is EBIT?

Q: In the previous question, suppose the corporate tax rate is

In the previous question, suppose the corporate tax rate is 35 percent. What is EBIT in this case? What is the WACC? Explain.Previous question:Wood Corp. uses no debt. The weighted average cost of cap...

Q: Maxwell Industries has a debt–equity ratio of 1.5. Its WACC

Maxwell Industries has a debt–equity ratio of 1.5. Its WACC is 10 percent, and its cost of debt is 7 percent. The corporate tax rate is 35 percent.a. What is the company’s cost of equity capital?b. Wh...