Questions from Corporate Finance

Q: Susan and Celia are twins but have very different attitudes toward debt

Susan and Celia are twins but have very different attitudes toward debt. Susan believes that firms should have a D/E ratio of 0.2 while Celia believes that the D/E ratio should be 1.1. Both sisters ha...

Q: The Saskatchewan Botanicals Company expects a free cash flow of $1

The Saskatchewan Botanicals Company expects a free cash flow of $1.08 million every year forever. Saskatchewan Botanicals currently has no debt, and its cost of equity is 18 percent. The corporate tax...

Q: Athabascan Drilling is currently unlevered and is valued at $10 million

Athabascan Drilling is currently unlevered and is valued at $10 million. The company is considering including debt in its capital structure and wants to know the likely impact on its value and cost of...

Q: Straightforward Theatre Company has an EBIT of $1.2 million

Straightforward Theatre Company has an EBIT of $1.2 million per year. The WACC of the firm is 10 percent and the before‐tax cost of debt is 5 percent. The debt is risk free and all cash flows are perp...

Q: Calculate invested capital and before‐tax ROI.

Calculate invested capital and before‐tax ROI.

Q: Provide two reasons why the cost of a security to a company

Provide two reasons why the cost of a security to a company differs from its required return in capital markets.

Q: A firm’s market values of equity and debt are $750,

A firm’s market values of equity and debt are $750,000 and $250,000, respectively. The before-tax cost of debt 6%; RF 3%; b eta ( ) 1.08; the market risk premium 8%; and the tax rate 25%. Calculate th...

Q: What is V Fed if the expected earnings per share on the

What is V Fed if the expected earnings per share on the S&P 500 is $23.50 and the long‐term U.S. bond rate is 4.75 percent?

Q: Rocky Mountain Depot just announced its EPS of $5. Retention

Rocky Mountain Depot just announced its EPS of $5. Retention rate (b) 0.4. The earnings are expected to grow at 10 percent for one year and then at 5 percent indefinitely. Given that Ke 16 percent, wh...

Q: Calculate the cost of issuing new equity for a firm, assuming

Calculate the cost of issuing new equity for a firm, assuming issue costs are 6 percent of the share price after taxes; market price per share $50; current dividend $3.75; and the constant growth rate...