A company has raised $90 million to finance their business, with a 50/50 debt to equity ratio. If they want to raise debt to reach a 70/30 D/E ratio, how much debt would they need to raise? options: $40 million $15 million $60 million $35 millio

A company has raised $90 million to finance their business, with a 50/50 debt to equity ratio. If they want to raise debt to reach a 70/30 D/E ratio, how much debt would they need to raise? options: $40 million $15 million $60 million $35 millio

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

A company has raised $90 million to finance their business, with a 50/50 debt to equity ratio. If they want to raise debt to reach a 70/30 D/E ratio, how much debt would they need to raise?

options:

	$40 million
	$15 million
	$60 million
	$35 million

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The firm is considering increasing its debt by $900,000, using the proceeds to buy back 90,000 shares of stock. what does buy back mean?
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You are given the following information concerning a firm: Assets required for operation: $5,000,000 Revenues: $8,400,000 Operating expenses: $7,900,000 Income tax rate: 40%. Management faces three possible combinations of financing: 100% equity financing 30% debt financing with a 6% interest rate 60% debt financing with a 6% interest rate What is the implication of the use of financial leverage when interest rates change?
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A firm has target debt-equity ratio of 0.60. The flotation cost for equity is 5% and the flotation cost for debt is 3%. The firm needs $10,000,000 investment to undertake a project. How much should the firm raise to account for flotation costs and the initial investment need of the project? O $10,395,010 O $10,416,667 $11,000,821 $10,572,912 O $10,443,864
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Question1: Cybernauts, Ltd., is a new firm that wishes to finance an expansion program and determine its capital structure. It can issue 20 percent debt or 18 percent preferred stock. The total capitalization of the firm will be $6 million, and common stock can be sold at $25 per share. The company is expected to have a 50 percent tax rate. Four possible capital structures being considered are as follows: Plan Debt Preferred Common 1 20% 20% 60% 2 35 25 40 3 50 0 50 4 40 25 25 What would be the earnings per share for the four alternatives if earnings before interest and taxes are at $1.5 million?

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