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You are given the following information for Watson Power Co. Assume the company’s tax rate is 40 percent. Debt: 10,000 7.1 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 107 percent of par; the bonds make semiannual payments. Common stock: 430,000 shares outstanding, selling for $61 per share; the beta is 1.04. Preferred stock: 21,000 shares of 5 percent preferred stock outstanding, currently selling for $81 per share. Market: 10 percent market risk premium and 5.1 percent risk-free rate. What is the company's WACC?
Some consumers might consider purchasing a new car with a car loan, while using credit cards to cover other purchases, and making only the minimum required payment to the credit card company each month. What is your opinion of this strategy?
An investor bought a racehorse for $1 million. The horse's average winnings were $700,000 per year and expenses averaged $200,000 per year. The horse was retired after 3 years, at which time it was sold to a breeder for $175,000. Assuming MACRS depre..
Fielding Wilderness Outfitters had projected its sales for the first six months of 2008 t be as follows: Jan.$50,000, Feb $60,000, March$100,000, April $180,000, May $240,000, June $240,000 Cost of goods sold is 60%of sales. Assume that the interest ..
A stock has an expected return of 16.1 percent, the risk-free rate is 6.45 percent, and the market risk premium is 7.2 percent. What must the beta of this stock be?
One year ago, the Jenkins Family Fun Center deposited $3,500 in an investment account for the purpose of buying new equipment four years from today. Today, they are adding another $5,300 to this account. They plan on making a final deposit of $7,500 ..
You have a short position in a put option on Apple Inc. common stock. The option has an exercise price of $122 and the stock is currently trading at $124.70. The option premium is $3.60 per contract. What is your net profit/loss if Apple Inc. stock p..
A machine costing $40,000 with a life of 5 years was purchased 3 years ago. Tax rate is 35% and discount rate 12%. if the machine is sold for $12,000 what is the after tax salvage value?
Ecology Labs, Inc., will pay a dividend of $3.90 per share in the next 12 months (D1). The required rate of return (Ke) is 22 percent and the constant growth rate is 10 percent. (Each question is independent of the others.) a. Compute the price of Ec..
Suppose a researcher collected data with n = 200 and came up with a sample mean of 83 and 95% confidence interval [78, 88]. If the researcher collected another sample from the same population with n = 200,
The Baton Rouge Company compiled the following information for the current year related to its defined pension plan: Determine the amount of defined benefit cost for the current year to be reported in (a) net income and (b) other comprehensive income..
An investment offers a total return of 11 percent over the coming year. Bill Bernanke thinks the total real return on this investment will be only 7.4 percent. What does Bill believe the inflation rate will be over the next year?
ABC corp. has equity with a market value of $750 million, debt with a market value of $330 million, and future operating lease commitments with a present value of $400 million. The firm also has a Beta of 1.2, a pre-tax cost of debt of 8%, and a marg..
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