Questions from Financial Management

Q: Air Seattle has an annual EBIT of $1,000,

Air Seattle has an annual EBIT of $1,000,000, and the WACC in the unlevered firm is 20%. The current tax rate is 35%. Air Seattle will have the same EBIT forever. If the company sells debt for $2,500,...

Q: Alpha Company is looking at two different capital structures, one an

Alpha Company is looking at two different capital structures, one an all-equity firm, and the other a leveraged firm with $2,000,000 of debt financing at 8% interest. The all-equity firm will have $4,...

Q: Beta, Gamma, and Delta companies are similar in every way

Beta, Gamma, and Delta companies are similar in every way except for their capital structures. Beta is an all-equity firm with $3,600,000 of value and 100,000 shares outstanding. Gamma is a leveraged...

Q: Kevin currently owns 800 shares of Cylon, Incorporated. Cylon has

Kevin currently owns 800 shares of Cylon, Incorporated. Cylon has a low-payout dividend policy, and this year will pay $0.35 cash dividend on its shares selling currently at $21.00. Kevin wants a high...

Q: Refer to Problem 9. Assume that Scott is now taxed at

Refer to Problem 9. Assume that Scott is now taxed at 20% on dividend distribution and 20% on capital gains. Assume also that Scott originally paid $18 for these shares. If Scott only wants to receive...

Q: Refer to Problem 10. Now assume that Kevin bought the stock

Refer to Problem 10. Now assume that Kevin bought the stock at $17.00 per share and his tax rates are 30% on dividends and 15% on capital gains. If Kevin changes the dividend policy from a low-dividen...

Q: Northern Railroad has announced that it will buy back 1,000

Northern Railroad has announced that it will buy back 1,000,000 of its 30,000,000 shares over the next year. If the stock is selling for $23.40, what is the equivalent cash dividend that the company c...

Q: Eastern Railroad has a dividend reinvestment program for shareholders. Over the

Eastern Railroad has a dividend reinvestment program for shareholders. Over the past five years, the company has had the following share prices and the following dividends. If you started with 100 sha...

Q: Stan is expanding his business and will sell common stock for the

Stan is expanding his business and will sell common stock for the needed funds. If the current risk-free rate is 4% and the expected market return is 12%, what is the cost of equity for Stan if the be...

Q: Western Railroad has a dividend reinvestment program for shareholders. Over the

Western Railroad has a dividend reinvestment program for shareholders. Over the past five years, the company has had the following share prices and the following dividends. If you started with 100 sha...