Avocado corporation generates a $1,000 in revenue this year, with the cost of good sold of $400 and selling general and administration expense of $100. The cost of its equity is 14%, while the risk-free rate is 5%. If the COGS only include the marginal costs of selling a computer. Avocado is considering to add $700 debt with a coupon rate of 5% and an YTM of 7.9% to its capital structure. What is the net income of Avocado without and with the debt?

3. The stock of Holiyay Products is selling for $24 a share before the stock goes ex-rights. The company has decided to raise funds through a rights offering wherein every shareholder will receive one for 3 rights issue at subscription price of $10.  What is the value of one right?  

4.Bettertogether company has a debt to equity ratio of 0.5. If the firm's cost of debt is 7 percent, its cost of equity is 13 percent and the company pays no tax, what is its WACC?

Answer rating: 100% (QA)

1 To calculate the net income of Avocado Corporation without and with the debt we need to consider the interest expense associated with the debt Witho... View the full answer