Question
Computerfield Inc . is a company that develops new software for the next generation. The firm has 10 million shares outstanding trading at $ 10
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Computerfield Inc. is a company that develops new software for the next generation. The firm has 10 million shares outstanding trading at $ 10 per share, no debt outstanding and a cash balance of $ 25 million. The firm decides that it should prepare for the New Software by borrowing $ 15 million, using its cash balance of $ 25 million, and buying $ 40 million of its own stock. (20 points)
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What was debt/equity ratio before and after transaction?
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What is the change in Equity multiplier?
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If the profit margin was increased by 10% and asset turnover increased by 15%, how much ROE would be improved?
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
