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Risk and return is a classic item in finance. You would like to estimate what the return on General Electric stock could be given its beta of 1.68. Other data you have collected: the rate of return on 90-day T-Bills is 2%, on 5 year T-Notes is 3%, and on the "long bond", the 30-year T-Bond = 5.5%. The Prime is 7%, LIBOR is 6.5%, and the average return on the overall stock market is estimated to be 12%. Ok, again, what do you expect the rate of return on GE's stock to be? (Hint: note that term :"bet" there's a classic formula that uses "beta".
Keira Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $63. The current price is $75 per share, and there are 25 million shares outstanding. The rights offer would raise a total of $50 million. What is ..
Gay Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever..
Folic acid inc. has $20 million in earnings pays $2.75 million in interest to bondholders and $1.80 million in dividends to preferred stockholders. a) What are the common stockholders residual claims to earnings? b) What are the common stockholders l..
Assume your firm has multiple investments to consider each with differing risk levels. How can differing risk levels be incorporated into NPV analysis? How can they be incorporated into IRR analysis?
Assume Kang Inc. is a $1 billion all-equity firm with a tax rate of .2 and a beta of .8. The riskfree rate is 2% and the equity risk premium is 6%. What is its WACC? Assume Kang Inc. is considering issuing .2 billion in debt to retire equity. This de..
Part 1 Garcia's Truckin Inc. is considering the purchase of a new production machine for $200,000. The purchase of this machine will result in an increase in earnings before interest and taxes of $50,000 per year. To operate the machine properly, wor..
Outdoor Sports is considering adding a miniature golf course to its facility. The course would cost $138,000, would be depreciated on a straight-line basis over its five-year life, and would have a zero salvage value. The estimated income from the go..
Assume Calvin invests in a mutual fund that earns about 10% annually from dividend income and capital gains. Given that Calvin wants to receive $1,000 to $1,500 a month from his mutual fund, what would be the size of his investment account 5 years fr..
Bond Yields. A bond with face value $1,000 has a current yield of 6% and a coupon rate of 8%. (LO6-1) If interest is paid annually, what is the bond’s price? Is the bond’s yield to maturity more or less than 8%?
James River Corp has preferred stock outstanding that trades at $125. If the stock yields 8%, what is the expected value of each quarterly dividend payment?
A stock has an expected return of 3%. What is its beta? Assume the risk-free rate is 7% and the expected rate of return on the market is 12%.
Consider an asset that costs $675,500 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a four-year project; at the end of the project, the asset can be sold for $136,900.
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