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Sorensen System's Inc. is expected to pay a $2.50 dividend at year end (D1=$2.50), the dividend is expected to grow at a constant rate of 5.50% each year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50% and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity use if from retained earnings?
If the firm raises new common equity, how much higher will Angell Inc.’s WACC be?
Ron borrows $20,000 for 20 years at an annual rate of interest of 10% convertible semi-annually. He repays $500 in interest at the end of each six months. The principal and the remaining accrued interest are to be paid at the end of 20 years by equal..
Your company will generate $65,000 in annual revenue each year for the next seven years from a new information database. If the appropriate interest rate is 8.25 percent, what is the present value of the savings?
Hastings Entertainment has a beta of 0.72. If the market return is expected to be 17.40 percent and the risk-free rate is 6.40 percent, what is Hastings’ required return?
Yet the Ibbotson study on new issues uses the crosssection empirical market line and finds significant abnormal returns in the month of issue and none in the following months.- How can the empirical results be reconciled with the theory?
What will be the "earnings after tax and available for common stockholders" if the money is borrowed?- What will be the "earnings after tax and available for common stockholders" if preferred stock is sold?
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2013, and its year-end total assets were $1,600,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
The coupon rate on an issue of debt is 8%. The yield of maturity on this issue is 10%. The corporate tax rate is 31%. What would be the approximate after-tax cost of debt for a new issue of bonds?
A portfolio is invested 16 percent in Stock G, 31 percent in Stock J, and 53 percent in Stock K. The expected returns on these stocks are 10 percent, 12.5 percent, and 17.9 percent, respectively. What is the portfolio’s expected return?
A video rental store will cost $650,000 to open. Assuming annual sales of $1 million, variable costs of 35%, fixed costs of $300,000, depreciation of $100,000, and a tax rate of 35%, calculate the NPV of the project over a 10-year horizon (no inflati..
Gold Mining, Inc. is using the profitability index (PI) when evaluating projects. Gold Mining’s cost of capital is 8.75 percent. What is the PI of a project if the initial costs are $2,371,020 and the project life is estimated as 9 years? The project..
The 60-day T-bills are currently yielding 7%. A broker has given you the following estimates of current interest rate premiums: Financial analyst has gathered market information, and suggests that the real rate of interest is 3 % and is expected to r..
In an efficient market, when should the stock price react to the value consequences of a dividend change? Discuss the effect both on the total return and on the capital gain. Which should be larger?
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