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A company has target weights of debt, preferred and common equity of 20%, 10% and 70%, respectively. It has liquidation values of debt, preferred and common equity of 30%, 15% and 55%. Its book values of debt, preferred and common equity are 40%, 10% and 50%. The estimated costs, net of adjustments, to the issuer are 4%, 8% and 11% for debt, preferred and common equity. Estimate the firm's weighted average cost of capital.
The current price of a stock is $33, and the annual risk-free rate is 7%. A call option with a strike price of $32 and 1 year until expiration has a current value of $7.20. What is the value of a put option written on the stock with the same exercise..
Do empirical studies support or reject the notion that corporate insiders earn abnormal profits on their trades? What about outside investors who mimic their trades? What forms of market efficiency, if any, are supported by these studies?
Could I Industries just paid a dividend of $1.35 per share. The dividends are expected to grow at a 19 percent rate for the next 5 years and then level off to a 7 percent growth rate indefinitely. If the required return is 13 percent, what is the val..
Calculate the maximum price that you would pay for a ‘constant growth’ stock that has the following characteristics: (a) Dividend: $1.50 (will pay), (b) Growth Rate: 5%, and (c) Required Rate of Return: 10%. Calculate the required rate of return on t..
It is estimated that the annual sales of an energy saving device will be 20,000 the first year and increase by 10,000 per year until 50,000 units are sold during the fourth year. The variable manufacturing cost per unit under proposal A is estimated ..
Kingston, Inc. management is considering purchasing a new machine at a cost of $4,408,526. They expect this equipment to produce cash flows of $757,564, $830,902, $1,026,664, $1,059,322, $1,217,327, and $1,289,435 over the next six years.
A U.S. company needs to raise €50,000,000. It plans to raise this money by issuing dollar-denominated bonds and using a currency swap to convert the dollars to Euros. The company expects interest rates in both the United States and the euro zone to f..
You have been diligently saving to buy a boat. For the last 10 years, you have been putting $50 per month into a secret savings account paying .5% interest per year. You started with $0. You just discovered that your spouse knew about the account the..
Bayou Okra Farms just paid a dividend of $3.35 on its stock. The growth rate in dividends is expected to be a constant 4 percent per year indefinitely. Investors require a return of 16 percent for the first three years, a return of 14 percent for the..
You just signed an IOU for a loan of $125,000 at 5% interest rate for 20 years. A new loan is available for 4% interest rate for the same maturity. To obtain this new loan, you must pay the bank $7,500 today. Should you go ahead and take on this new ..
James McCulloch purchased a 20-year U.S. Treasury bond four years ago for $10,500. The bond paid 3.600 percent annual interest. Four years later he sold the bond for $10,600. what is the annual interest amount for the bond?
An investment under consideration has a payback of eight years and a cost of $868,000. Assume the cash flows are conventional. If the required return is 10 percent, what is the worst-case NPV?
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