Question
Considering the companys current equity $90,488 Trillion, and management is considering an $10 M expansion to meet increased demand. The $10 M expansion would yield
Considering the companys current equity $90,488 Trillion, and management is considering an $10 M expansion to meet increased demand. The $10 M expansion would yield $1.6 M in additional annual income before interest expense. Choose the companys current (before expansion) annual income before interest expense (return on equity). To fund the expansion, the company is considering the issuance of a 10-year, $10 M bond with semi-annual interest payments (the principal due at the end of 10 years). Using the return on equity as the decision criterion, show computations that forms your decision to support, or reject the expansion if stated interest on the $10 M bond is (a) 6%, (b) and the market interest rate is 5. % - Note that, the bond will not be callable. The annual income before interest is 63,930 Trillion.
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