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Your company has two divisions: One division sells software and the other division sells computers through a direct sales channel, primarily taking orders over the internet. You have decided that Dell Computer is very similar to your computer division, in terms of both risk and financing. You go online and find the following information: Dell's beta is 1.21, the risk-free rate is 4.8 %, its market value of equity is $ 67.5 billion, and it has $ 709 million worth of debt with a yield to maturity of 6.1 %. Your tax rate is 40 % and you use a market risk premium of 5.1 % in your WACC estimates. a. What is an estimate of the WACC for your computer sales division? b. If your overall company WACC is 12.4 % and the computer sales division represents 36 % of the value of your firm, what is an estimate of the WACC for your software division?
Suppose a ten-year, 1,000 bond with an 8.8% coupon rate and semi annual coupons is trading for 1,034.65. What is the bond's yield to maturity (expressed as an APR with semi annual compounding)? If the bond's yield to maturity changes to 9.5% APR, wha..
Company expects to use $1,600,000 short term credit bus wants a $3, 000, 00 line of credit in case of unexpected events. LIBOR is 4% and the loan is priced at LIBOR plus 2.5% with Commitment fee of 0.3% on the unused portion of the line. Bank also re..
The shareholders of the Pickwick Paper Company need to elect eight directors. There are 200,000 shares outstanding. What is the minimum number of shares you need to own to ensure that you can elect at least one director if the company has majority vo..
Alamosa Corp. purchased a lot in Arvada 3 years ago at a cost of $250,000. Today, that lot has a market value of $360,000. At the time of the purchase, the company spent $20,000 to level the lot and another $25,000 to install storm drains. The compan..
Under what condition(s) would a company want to consider calling a callable bond issue?
Suppose a firm borrow $5,000, and the loan is to be repaid in 4 equal payments at the end of each of the next 4 years. The bank charges a 10% interest rate on the loan balance that is outstanding at the beginning of each year. The proportion in year ..
In a Dutch auction of 10,000 options, bids are as given: - What is the result of the auction? - Who buys how many at what price?
You would like to develop an office building. Your analysts forecast that it will cost you 300,000 immediately (time 0), and it will cost you 500,000 in one year (time 1). They forecast you can sell the building for 1,400,000 in two years (time 2). I..
Show that there is a cutoff A such that if Ai A for i = 1, 2, both firms receive funding.
Assume the following information for a U.S.-based MNC that is considering obtaining funding for a project in France: U.S. risk-free rate = 2% France risk-free rate = 5% Risk premium on dollar-denominated debt provided by U.S. creditors = 3% Risk prem..
What country(ies) do you think is(are) presently attractive for U.S. corporations seeking foreign direct investment opportunities? Take into account any geopolitical/economic/currency risks you are aware of.
Which of the following is measured by the payback period method?
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