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GS Inc. has been financed using both debt and equity. The company has outstanding a 20-year, $1,000,000 par value bond that was issued in 2005 and that carries a 10% coupon rate, and tomorrow, a 20-year bond with a par value of $1,000,000 carrying a coupon rate of 8% will be issued. GS has preferred stock outstanding (25,000 shares, market price = $75) with a dividend yield of 5.5%. GS has issued 100,000 shares of common stock, and its most recent market price was $32.50 per share.
Presently, the T-bill rate is 4%, and analysts have estimated that the market will return its historical average, which is 12%. The most recent S&P report on GS Inc. listed a beta of .95. The company’s tax rate is 40%, and the company uses wacc as its discount rate for projects. What is the WACC for GS Inc.?
Using fair value accounting for goodwill, under FAS 141R, determine the amount of Goodwill that "the acquiring company" enters on its balance sheet in the following situation: Oxford Corporation is acquiring the target Bickley, Inc. in a merger. Both..
The real risk-free rate is 2%. Inflation is expected to be 3% this year, 5% next year, and then 6% thereafter. The maturity risk premium is estimated to be 0.0004 x (t - 1), where t = number of years to maturity. What is the nominal interest rate on ..
Under typical circumstances the cost of debt is lower than the cost of equity. List two reason why. Do not use flotation costs and taxes on dividends as reasons.
Post your comments and respond to classmates' posts for this Discussion Question: If common stockholders are the owners of the company, why do they have the last claim on assets and a residual claim on income?
The CAPM does not require investors have homogeneous expectations, but rather that they have:
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You have decided to refinance your mortgage. You plan to borrow whatever is outstanding on your current mortgage. The current monthly payment is $2,356 and you have made every payment on time. The original term of the mortgage was 30 years, and the m..
Write a brief overview concerning stock valuation. A brief explanation of the legal rights and privileges of common stockholders.
On May 1, 2014, Goldberg Company sold some machinery to Newlin Company on an instalment contract basis. The contract required five equal annual payments, with the first payment due on May 1, 2014. What present value concept is appropriate for this si..
Adams enterprises no callable bonds currently sell for $1,030. They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000. What is their yield to maturity?
A firm’s capital structure consists of 25% debt and 75% equity. The yield to maturity on its debt outstanding is 5%. Its tax rate is 40% and its cost of equity is 10%. What is its WACC?
You are evaluating two different silicon wafer milling machines. The Techron I costs $213,000, has a three-year life, and has pretax operating costs of $54,000 per year. The Techron II costs $375,000, has a five-year life, and has pretax operating co..
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