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Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.76 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt–equity ratio of .85, a cost of equity of 11.6 percent, and an aftertax cost of debt of 4.4 percent. The cost-saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +1 per cent to the cost of capital for such risky projects.
What is the maximum initial cost of company would be willing to pay for the project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)
A bond has a coupon rate of 9.8 percent and 11 years until maturity. If the yield to maturity is 8.2 percent, what is the price of the bond?
A Treasury STRIPS is quoted at 61.159 and has 11 years until maturity. What is the yield to maturity? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Duke Power is about to issue a new 10 year bond with a coupon rate of 6.25%. The bond has been rated AA by Standard & Poor's. You observe that a similar bond, recently issued by a power company in Virginia is priced such that its yield-to-maturity is..
Tauscher Textiles Corporation has an inventory conversion period of 45 days, a receiva-bles collection period of 45 days, and a payables deferral period of 35 days. If Tauscher's sales are $3,309,028 and all sales are on credit, what is the firm's in..
The coupon rate on a debt issue is 6%. If the yield to maturity on the debt is 9%, what is the after-tax cost of debt in the weighted average cost of capital if the firm's tax rate is 34%?
A firm is considering a capital project for which the following information is available: An existing piece of equipment that would be disposed of to make room for new equipment has a historical cost of $370,000. The firm's effective tax rate is 40%...
The covariance of the returns between Willow Stock and Sky Diamond Stock is 0.0940. The variance of Willow is 0.1890, and the variance of Sky Diamond is 0.1210. What is the correlation coefficient between the returns of the two stocks?
A company believes it can sell 5,100,000 of its proposed new optical mouse at a price of $11.00 each. There will be $8,000,000 in fixed costs associated with the mouse. If the company desires to make a profit $2,000,000 on the mouse, what is the targ..
Beatrice invests $1,440 in an account that pays 3 percent simple interest. How much more could she have earned over a 4-year period if the interest had compounded annually?
Bud and Katie Milner file a joint return. During the year, they paid $11,000 to their nanny to look after their three children, ages 2, 9, and 11. Bud and Katie both work and earned $24,000 and $31,000, respectively. Compute the Milners' child and de..
If Whitehurst requires a 12 percent rate of return on investments of this type, what value would Whitehurst place on the Ivanhoe stock?
As a firm increases risk of the projects, the debt holders charge higher interest rates. But this implies even a greater incentive to take on more risk, so in some instances creditors may ration credit altogether. If the firm has enough cash to finan..
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