Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259722615
Author: Richard A Brealey, Stewart C Myers, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 24, Problem 17QP
Summary Introduction
To discuss: The reasons on whether the company is showing a profit or loss on the contract.
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O For every 1 percent change in its EBIT, the firm's sales will change by 2 percent.
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○ For every 1 percent change in its EPS, the firm's sales will change by 0.5 percent.
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Dani Corporation has 3.4 million shares of common stock outstanding. The current share price is $84.50, and the book value per
share is $8.75. The company also has two bond issues outstanding. The first bond issue has a face value of $71 million, a coupon
rate of 5.1 percent, and sells for 95.5 percent of par. The second issue has a face value of $43 million, a coupon rate of 5.7 percent
and sells for 104.5 percent of par. The first issue matures in 21 years, the second in 9 years. The most recent dividend was $3.98 a
the dividend growth rate is 4.1 percent. Assume that the overall cost of debt is the weighted average of that implied by the two
outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent.
What is the company's cost of equity?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Cost of equity
%
What is the company's aftertax cost of debt?
Note: Do not round intermediate…
Chapter 24 Solutions
Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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