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Corporate Finance MBI Company Acetate, Inc.

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1. The MBI Company does not want to grow. The company's financial management believes it has no positive NPV projects. The company's operating financial characteristics are
Profit margin = 10%
Assets-sales ratio = 150%
Debt-equity ratio = 100%
Dividend-payout ratio = 50%
Calculate the sustainable growth rate for the MBI Company (this should be completed in Excel)

2. Define the three forms of market efficiency
3. What is preferred stock? Do you think it's more like debt or equity? Please provide one reason for your answer.
4-5.Following are the equity accounts for Kerch Manufacturing (this should be completed in Excel).
Common stock, $2 par $135,430
Capital surplus 203,145
Retained earnings 2,370,025
Total $2,708,600
a. How many shares are outstanding?
b. At what average price were the shares sold?
6-7.The eastern Spruce equity accounts for last year are as follows:
Common stock, $1 par (500 shares outstanding) _________
Capital surplus $50,000
Retained earnings 100,000
Total _________
Fill in the missing numbers (this should be completed in Excel).

8-10.Acetate, Inc., has equity with a market value of $20 million and debt with a market value of $10 million. The cost of the debt is 14% per annum. Treasury bills that mature in one year yield 8% per annum, and the expected return on the market portfolio over the next year is 18%. The beta of Acetate's equity is 0.9. The firm pays no taxes (this should be completed in Excel)
a. What is Acetate's debt-equity ratio?
b. What is the firm's weighted average cost of capital?
c. What is the cost of capital for an otherwise identical all-equity firm?

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2. Define the three forms of market efficiency

1. Weak-from EMH postulates that prices reflect all information contained in the past history of prices.
2. Semistrong form EMH says that prices not only ...

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