suppose that the Matrix corporation has $120million of assets, all financed with equity, and thatthe form has 6 million shares of stock outstandingvalued at $40 per share, suppose that managementhas identified investment opportunities requiring$60 million of new funds and can raise the funds inone of the following three ways: Financing package1: Issue $60 million equity (3,000,000) shares ofstocks at $40 per share) • Financing package 2:Issue $30 million equity (1,500,000) shares of stocksat $40 per share), and borrow $30 million with anannual interest rate 8% • Financing package 3:Borrow $60 million with an interest of 8%. a.Complete the following table for each financingpackage after the financing capital structure iscompleted: - Debt Equity No. of Shares Debt-equityratio Debt-to- Financing package Assets Asset ratio23b. Suppose the Matrix Corporation has $27 millionof operating earings. Show that the firm's return onassets is 15% c. compute the earnings per share forthe three financing packages by completing thetable below: Financing packages 2. Operatingearnings in millions - Interest expense in million =Earnings available to owners in millions No. ofshares in millions Earnings per share

The combination of debt and equity used to fund a company's assets and activities is referred to as…

suppose that the Matrix corporation has $120 million of assets, all financed with equity, and that the form has 6 million shares of stock outstanding valued at $40 per share, suppose that management has identified investment opportunities requiring $60 million of new funds and can raise the funds in one of the following three ways: Financing package

suppose that the Matrix corporation has $120 million of assets, all financed with equity, and that the form has 6 million shares of stock outstanding valued at $40 per share, suppose that management has identified investment opportunities requiring $60 million of new funds and can raise the funds in one of the following three ways: Financing package

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

suppose that the Matrix corporation has $120
million of assets, all financed with equity, and that
the form has 6 million shares of stock outstanding
valued at $40 per share, suppose that management
has identified investment opportunities requiring
$60 million of new funds and can raise the funds in
one of the following three ways: Financing package
1: Issue $60 million equity (3,000,000) shares of
stocks at $40 per share) • Financing package 2:
Issue $30 million equity (1,500,000) shares of stocks
at $40 per share), and borrow $30 million with an
annual interest rate 8% • Financing package 3:
Borrow $60 million with an interest of 8%. a.
Complete the following table for each financing
package after the financing capital structure is
completed: - Debt Equity No. of Shares Debt-equity
ratio Debt-to- Financing package Assets Asset ratio
23
b. Suppose the Matrix Corporation has $27 million
of operating earings. Show that the firm's return on
assets is 15% c. compute the earnings per share for
the three financing packages by completing the
table below: Financing packages 2. Operating
earnings in millions - Interest expense in million =
Earnings available to owners in millions No. of
shares in millions Earnings per share

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Answer the following lettered questions on the basis of the information in this table: a. If the interest-rate cost of funds is 8 percent, what will be the optimal amount of R&D spending for this firm?b. Explain why $20 million of R&D spending will not be optimal.c. Why won’t $60 million be optimal either?
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