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Bouchard Company's stock sells for $20 per share, its last dividend (D0) was $1.00, its growth rate is a constant 5 percent, and the company would incur a flotation cost of 7 percent if it sold new common stock. Retained earnings for the coming year are expected to be $1,000,000, and the common equity ratio is 55 percent. If Bouchard has a capital budget of $2,000,000, what component cost of common equity will be built into the WACC for the last dollar of capital the company raises? The answer is 10.65% but an explanation would be really helpful.
A Canadian airline, Biggles Air, just bought a new plane for five million dollars. It’s a Class 9 asset, which means that Revenue Canada considers it to depreciate at 25% per annum. What is the after-tax present worth of the salvage price Biggles Air..
Suppose you know that a company’s stock currently sells for $54 per share and the required return on the stock is 9 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it’..
Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?
What impact would this change have on the equity value of the business? What if the growth rate were only 2 percent and Is the financial risk of the business different under the two acquisition alternatives?
You purchased 100 shares of IBM common stock on margin at $70 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest ..
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 18 percent, –3 percent, 16 percent, 11 percent, and 10 percent. Suppose the average inflation rate over this period was 3.2 percent and the average T-bil..
Eastimating the cost of capital of the firm, should include estimating cost of equity, cost of debt, the market value of equity, market value of debt, and average weighted average cost of capital for apple.
Use the formula for simple interest to find the indicated quantity: I=PRT I=$425, P=$10,000, R=7% T=? After we solve for T, how do we figure exact number of days, weeks, months or years?
Calculate the current return on a stock of your choice and compare it to returns on bonds. Which is better to invest in presently a stock or a bond in this company and why? Please explain
Fuentes Company operates a large discount store and uses the retail method to estimate the cost of ending inventory. Management suspects that in recent weeks there have been unusually heavy losses from shoplifting or employee pilfer- age. Using the r..
Stock Valuation and PE. Sully Corp. currently has an EPS of $2.35, and the benchmark PE for the company is 21. Earnings are expected to grow at 7 percent per year. What is your estimate of the current stock price? Assuming the company pays no dividen..
You have employer-sponsored retirement plan. Assume, your age is 35 and you plan to retire at 65. You can contribute $3,600 per year to this plan. Your employer will match this amount. If you can earn an eight percent return on this investment, How m..
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