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Medical Research Corporation is expanding its research and production capacity to introduce a new line of products. Current plans call for the expenditure of $100 million on four projects of equal size ($25 million each), but different returns. Project A is in blood clotting proteins and has an expected return of 18 percent. Project B relates to a hepatitis vaccine and carries a potential return of 14 percent. Project C, dealing with a cardiovascular compound, is expected to earn 11.8 percent, and Project D, an investment in orthopedic implants, is expected to show a 10.9 percent return.
The firm has $15 million in retained earnings. After a capital structure with $15 million in retained earnings is reached (in which retained earnings represent 60 percent of the financing), all additional equity financing must come in the form of new common stock.
Common stock is selling for $25 per share and underwriting costs are estimated at $3 if new shares are issued. Dividends for the next year will be $.90 per share (D1), and earnings and dividends have grown consistently at 11 percent per year.
The yield on comparative bonds has been hovering at 11 percent. The investment banker feels that the first $20 million of bonds could be sold to yield 11 percent while additional debt might require a 2 percent premium and be sold to yield 13 percent. The corporate tax rate is 30 percent. Debt represents 40 percent of the capital structure.
Deshawn Carter has just received his open-enrollment notification and has asked you to assess his disability insurance coverage. He currently has a long-term, any-occupation disability policy available through his employer that pays a benefit of 8..
Calculate the rate at which a firm can grow without changing its leverage if its payout ratio is 75%, equity outstanding at the beginning of the year is $970,000, and its net income for the year is $157,000. What is the WACC for a firm with 45% debt ..
Which of the following best describes a company's operating activities?
Suppose that the following conditions all hold: uncovered and covered interest rate parity, real interest rate parity, relative and absolute purchasing power parity. Compute the expected future spot exchange rate for one year from now (Brazilian real..
What corporate governance and social policy issues are raised by this transaction? How do you think the leadership team at B&D (other than the CEO) will view this transaction? How about the Governor of Maryland (B&D’ home state)?
A 10-year annuity pays $2,900 per month, and payments are made at the end of each month. The interest rate is 8 percent compounded monthly for the first six years, and 6 percent compounded monthly thereafter. What is the present value of the annuity?
Apollo sends out an Earnest money deposit of $10,000 for 123 Dragon way on December 31, 2015. Apollo purchased 123 Dragon way on March 1, 2016 in the amount of $470,000. The property was leveraged with an 80% loan from Anchor Capital with 8% financin..
A project has an initial outlay of $2,043. It has a single payoff at the end of year 3 of $7,083. What is the net present value (NPV) of the project if the company’s cost of capital is 8.30 percent?
You own a stock portfolio invested 20 percent in Stock Q, 20 percent in Stock R, 20 percent in Stock S, and 40 percent in Stock T. The betas for these four stocks are 1.53, 1.38, 0.9, and 1.01, respectively. What is the portfolio beta?
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,214, and currently sell at a price of $1,377.14. What is their nominal yield to maturity? What is their nominal yield to..
Assume you invest $25,000 into an account with an 11% APR. Interest is compounded monthly. How much will you have in 25 years? How much more is this amount than if you compounded interest yearly? But this time continuously compound the interest?
Suppose the average return on an asset is 11.5 percent and the standard deviation is 20 percent. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel to determine the probability that in any given year you will..
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