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Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of .75. It’s considering building a new $54 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $6.6 million in perpetuity. The company raises all equity from outside financing. There are three financing options: 1. A new issue of common stock: The flotation costs of the new common stock would be 8.4 percent of the amount raised. The required return on the company’s new equity is 15 percent. 2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 3 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 6 percent, they will sell at par. 3. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, it has no flotation costs, and the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .10. (Assume there is no difference between the pretax and aftertax accounts payable cost.) What is the NPV of the new plant? Assume that PC has a 38 percent tax rate.
fixed coupon bond , 20 years left until maturity , coupon rate 6% , yield of bond 6.2% , paid semi annual. What is bond's price? fixed coupon bond, 12 years left until maturity , coupon rate 7% , price of bond is $1060.00 , paid semi annually. What i..
William's All Night Long DJ, Inc. has outstanding preferred stock that pays an annual dividend of $6.00 per share.Compute the current price of the preferred stock if the investor's required return on the preferred stock is:(a) 8%(b) 10%(c) 12%
Six-month T-bills have a nominal rate of 4%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 2%. In the spot exchange market, 1 yen equals $0.005. If interest rate parity holds, what is the 6-month forward exchange ra..
Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of a. 50, which is low by historical standards. b. 25, whic..
An institutional investor speculates the rise of interest rate in twelve months time. It therefore enters today with a local bank a twelve-month forward rate agreement to borrow Eurodollar for six months at 1.96% at contract expiration, with a notion..
You are evaluating a project for ‘The Ultimate’ recreational tennis racket, guaranteed to correct a wimpy backhand. You estimate the sales price of ‘The Ultimate’ to be $200 and sales volume to be 1,500 units the 1st year, 2,250 units the 2nd year an..
A firm has total assets of $1,920,000. It has $828,000 in long-term debt. The stockholders equity is $628,000. What is the debt to total asset ratio?
Expert Security Inc. has 9 percent coupon bonds on the market with five (5 ) years left until maturity. These bonds make annual payments. If the yield to maturity on t he bond is 8 percent, what is the current price of the bond? What would be the pr ..
Hermione and Ron have unexpectedly inherited a magic potions business from an aunt. Both are pursuing other careers and are not really interested in running the business at the moment. He estimates that after additional salary costs of €30,000 per an..
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $760 per set and have a variable cost of $320 per set. The company has spent $126,000 for a marketing study that determined the company will sell 24,000 sets per year ..
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 16 percent, –16 percent, 18 percent, 28 percent, and 10 percent. a. What was the arithmetic average return on Crash-n-Burn’s stock over this five-year pe..
Which of the following bond provisions will make a bond more desirable to investors, other things being equal?
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