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Here is a book balance sheet for Duane S. Burg Associates. Figures are in millions. Unfortunately, the company has fallen on hard times. The 6
Here is a book balance sheet for Duane S. Burg Associates. Figures are in millions. Unfortunately, the company has fallen on hard times. The 6 million shares are trading for only $4 apiece, and the market value of its debt securities is 20 percent below the face (book) value. Suppose shareholders now demand a 20 percent expected rate of return. The bonds are now yielding 14 percent. The corporate tax rate is 35 percent. The firm is evaluating a marketing project involving national TV advertising with the below-listed cash flows. What do you recommend? Why? (Note: round off your weights to 4 decimal places. Otherwise your answer could be very far off from the one in the back. The answer for this problem is very sensitive to the rounding.)
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