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LilyMac Studios, a national chain of photography studios, is considering opening up a chain of coffee shop/ art galleries. While the existing operations of the firm have a beta of 1.17, the new chain is expected to have a beta of 0.8. LilyMac currently has 500,000 shares of common stock outstanding, which are selling for $ 63.72 per share, with annual dividends on common shares of $5.00/share, and dividends growing at 6.00% annually for an indefinite period of time. Also LilyMacy has a $ 10 million bond issue, selling at 104 percent of par. The expected market risk premium is 6 percent, and the current risk- free rate is 5.5 percent. The bonds pay an 8 percent semiannual coupon and mature in 20 years. Determine the cost of equity with flotation costs using the simple average of equity cost determined on the basis of the constant growth method and CAPM.
The current operations of the firm produce EBIT of $ 18 million per year, and the chain’s operations are expected to add $ 25 million per year to that. The new chain will be funded with 65 percent equity and 35 percent debt, and estimated flotation costs are expected to be 12 percent and 5 percent, respectively. What should be the WACC for the new chain of coffee shops?
You purchase ten shares of some stock. The delta of a certain call on this stock is 0.63339, and the gamma of this call is 0.073. The delta of a put with the same terms as the call is !0.27145. You wish to delta and gamma hedge your position by purch..
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Furman Industries is negotiating a lease on a new piece of equipment which would cost $200,000 if purchased. he equipment falls into the MACTS-3-year class and it would be used for three years and then sold, because Furman plans to move to a ne facil..
A company pledges to pay the following dividends: $2, $8, $3, and then a constant growth rate of 4% indefinitely. If you require an 11% return, what is the appropriate current price?
You own a 5-year bond with a face value of $1,000 and a coupon rate of 5 percent with annual payments. The bond is currently worth $810.46. If market interest rates remain unchanged, what will be the value of the bond next year when there are 4 years..
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