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Johnny Cake Ltd. has 8 million shares of stock outstanding selling at $17 per share and an issue of $40 million in 10 percent annual coupon bonds with a maturity of 18 years, selling at 92.5 percent of par. Assume Johnny Cake’s weighted-average tax rate is 34 percent, its next dividend is expected to be $3 per share, and all future dividends are expected to grow at 5 percent per year, indefinitely. What is its WACC?
Determine the following Amount of safety stock, in units, Average inventory and annual carrying costs and Reorder point.
When a firm has risky debt, its equity can be viewed as an option on the total value of the firm with an exercise price equal to the face value of the debt.
What is the present value of a twenty five annuity that pays $1500 a year with the annuity first payment occurring in Year 8? (first payment in Year 8) Also, the interest rate is expected to be 5 percent until Year 8 and then to increase to 9 percent..
Rick Rueta purchased a $76,000 home at 7.5% for 30 years with a down payment of $25,000. His annual real estate tax is $1,680 along with an annual insurance premium of $840. Ricks bank requires that his monthly payment include an escrow deposit for t..
Paradise Adventures just paid a dividend of $2.00. They are growing rapidly and are expecting to grow dividends at 20% for the next two years and then 10% in the third year before reducing the dividends to a constant growth rate of 3%. If the require..
These are the forecasts of revenues over the lifetime of a project. Assume all cash flows occur at the end of the year. Yearly expenses from year 1 to year 3: $30 Million Yearly revenues from year 1 to year 3: $0 Yearly expenses from year 4 to year 1..
Describe an example of a real-world industry or market that would be considered by economists to be a natural monopoly. What characteristics of the industry make it a monopoly? What is the impact of the monopoly power on its customers? Why might gove..
The company has zero debt in its capital structure. Its overall cost of capital is 9%. The firm is considering a new capital structure with 50% debt. The interest rate on the debt would be 4%. Assuming that the corporate tax rate is 34%, what would b..
Bill’s Bakery has current earnings per share of $2.98. Current book value is $4.9 per share. The appropriate discount rate for Bill’s Bakery is 11 percent. Calculate the share price for Bill’s Bakery if earnings grow at 3.8 percent forever.
Explain how a bank's credit risk and interest rate risk can affect its liquidity risk.
Surplus and Deficit Units Explain the meaning of surplus units and deficit units. Provide an example of each. Which types of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a deficit unit in your relations..
You own a stock that has an expected return of 13.6% and a beta of 1.3. The U.S. Treasury bill is yielding 4.2% and the inflation rate is 3.8%. What is the expected rate of return on the market?
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