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A company is firm financed with common stock (equity) and bonds (debt). It has bonds outstanding with a price of $980 (par value of $1000). The bonds mature in 10 years, have a coupon rate of 6% and pay coupons semi-annually. The firm’s beta is 1.4, the risk free rate is 5%, and the market return is 10%. The tax rate is 40%. The market value of debt is $400 million (wd = 40%) and the market value of equity is $600 million (wc = 60%). Compute the WACC. Use the CAPM model to find the cost of equity.
a. Find the cost of debt (Yield to Maturity).
b. Find the cost of equity using CAPM.
c. Find the WACC.
Emacs Co. issued 13-year, $1,000 face value bonds one year ago at a coupon rate of 9.7 percent. The bonds make semiannual payments. If the YTM on these bonds is 7.4 percent, what is the current bond price? A $1000 face value bond has two years left t..
LKD Co. has 11 percent coupon bonds with a YTM of 9.5 percent. The current yield on these bonds is 9.9 percent. How many years do these bonds have left until they mature?
The current price of oil is 32 per barrel and the 6- month forward is $30.75. The continuously compounded risk-free rate is 2%. What is the annualized lease rate for this oil contract?
FUTURE PRICE A bond has a $1,000 par value, 14 years to maturity, and a 6% semiannual coupon and sells for $975. Assume that the yield to maturity remains at 6.27% for the next 2 years. What will the price be 2 years from today? Round to TWO decimal ..
An asset has a 15% chance of a -10% return, a 25% chance of a 0% return, a 25% chance of a 5% returns, and a 35% chance of a 20% return. What is the expected rate of return of this asset?
What are some long-term options of financing? How can leverage affect the value of the firm? What is homemade leverage?
Which of the following is not true regarding a revolving credit agreement
Look up annual dividend of Microsoft (MSFT) on finance.yahoo.com. Assuming Microsoft dividend grows by 3% every year for 10 years and the discount rate is 6%. What is the intrinsic price of Microsoft today and is it more or less than the market price..
You are considering investing in Dakota’s Security Services. You have been able to locate the following information on the firm: Total assets are $32.5 million, accounts receivable are $4.45 million, ACP is 25 days, net income is $4.00 million, and d..
Consider a portfolio that is delta neutral, with gamma of -5,000 and a vega of -8,000. A traded option has a gamma of 0.5 and a vega of 2, and delta of 0.6. Second traded option with gamma of 0.8, vega of 1.2 and delat of 0.5. How could the portfolio..
Suppose you purchase a 30-year Treasury bond with a 7% annual coupon, initially trading at par. In 10 years time the bond's yield to maturity has risen to 8% (EAR). (Assume $100 face value bond) If you sell the bond now, what internal rate of return..
Calculate the financial breakeven point, and the earnings per share for each structure assume a 40% tax rate on ordinary income. Graph the two capital structures on the same set EBIT- EPS axes. Compute the degree of financial leverage with each struc..
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