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Mary is running a retirement community and is negotiating with a client, Jimmy, who wishes to reside at Mary’s community when he retires in ten years at age 65. Actuarial statistics indicate that Jimmy will probably die at age 90. Costs of caring for each client are estimated to be $15,000 per year. Jimmy’s salary is $32,000 per year. If Mary requires a $10,000 down payment today and have a 6% investment opportunity cost compounding annually, what proportion of Jimmy's annual income should he pay to Mary each year between now and when he retires? Assume that all cash flows occur at year-end (except for the down payment). Hints: Jim has 10 years from now to make the annual deposits to pay for the 25 years cost (15,000 each year). Calculate the present value of those 15,000s, and that is how much worth in total (Jim’s annual deposits and the down payment worth) at the age of 65.
A company is 35% financed by risk-free debt. The interest rate is 12%, the expected market risk premium is 9%, and the beta of the company's common stock is 1.5. What is the company cost of capital? What is the after-tax WACC, assuming that the compa..
Holyrood Co. just paid a dividend of $2.10 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent divi..
A firm has a retention ratio of 49 percent and a sustainable growth rate of 7.80 percent. The capital intensity ratio is 1.73 and the debt-equity ratio is .84. What is the profit margin?
______________ is when derivatives are used to try and make money by taking on risk. A swap is a method for reducing financial risk. Which of the following statements about swaps is not correct? Suppose you believe that Du Pont’s stock price is going..
The owner of Shady Rest Nursing Home insists that the facility earn $80,000 in annual profits. How much must the administrator raise the per day charge for the privately insured residents if 25 percent of the residents are covered by non-private pay ..
What is the yield on Wilson Dover's debt?
If the lender wanted to adapt the $200,000 loan at 8% with monthly payments and a 30 year term that it yielded 8.75%, how many points would be necessary?
Bill Dukes has $100,000 invested in a 2-stock portfolio. $35,000 is invested in Stock X and the remainder is invested in Stock Y. X’s beta is 1.50 and Y’s beta is 0.70. What is the portfolio’s beta?
Folic Acid Inc., has $20 million in earnings, pays $2.75 million in interest to bondholders, and $1.80 million in dividends to preferred shareholders. What are the common shareholders’ residual claims to earnings? What are the common shareholders’ le..
Compute the discounted payback period for a project with the following cash flows, if the company's discount rate is 12%.
Justify whether the standard deviation or covariance is the most significant measurement when adding a risky asset to an already highly risky portfolio. Provide support for your justification.
Blue Bull, Inc., has a target debt-equity ratio of .73. Its WACC is 8.7 percent, and the tax rate is 38 percent. If the company’s cost of equity is 11.3 percent, what is its pretax cost of debt?
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