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Company Wii gives you the following information for its operation. The expected income available for dividends is $42 million next year before the firm has any debts. Suppose there is a 25% corporate income tax imposed on the company. Company Wii has no debt originally. There are 6 million shares of common stocks outstanding. Let the market price for the stock be $42.5 per share before debt. Suppose that there is no expansion plan for the company to either spend on working capital vs. long-term investment or to apply the accumulated retained earning. Answer the following questions:
a) What is the possible dividend per share for the common stock before company Wii has debt? What is the cost of equity for Company Wii’s stock before debt? Suppose that Company Wii now has issued some bonds with 6% coupon rate recently. Let Company Wii’s total debts (with the above coupon bond) be $80 million and let this coupon rate represent the cost of debt, how much will be the value of stockholders’ equities under Modigliani and Miller’s proposition 2?
b) What is the cost of equity for Company Wii, if there’s no preferred stock issued for this company?
c) What is the weighted average cost of capital after Company Wii has debts?
d) Suppose the risk-free rate is 2%, S&P 500 index return is 12%, what is the “beta” of Company Wii’s common stock after issuing debts?
e) What are the limitations of M&M proposition 2?
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A portfolio has 40% of its value in IBM shares and the rest in Microsoft (MSFT). The volatility of IBM and MSFT are 40% and 30%, respectively, and the correlation between IBM and MSFT is -0.3. What is the standard deviation of the portfolio?
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You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $490 per unit and sales volume to be 1,000 units in year 1; 900 units in year 2; and 1,325 units in ye..
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General Mills has $1,000 par value, 12 year bond outstanding with an annual coupon rate of 3.60 per year, paid semi annually. Market interest rates on similar bonds are 12.70 percent. Calculate the bonds price today.
A firm has earnings available to common stock holders of $2 million and has 500,000 shares of common outstanding. The stock sells for $62/share. The firm is contemplating the payment of $2/share in cash dividends to its 500,000 stockholders.
The Taylor Mountain Uranium Company currently has annual cash revenues of $1.2 million and annual cash expenses of $700,000. Depreciation amounts to $200,000 per year. These figures are expected to remain constant for the foreseeable future (at least..
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