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An unlevered firm has an asset market beta Df 1.5. The risk-free rate is 3%. The equity premium Is 4%.
1. What is the firm's cost of capital?
2. The firm refinances itself. It repurchases half of its stock with debt that it issues. Assume that this debt is risk free. what is the equity beta of the levered firm?
3. According to the CAPM, what rate of return does the firm have to offer to its creditors?
4. According to the CAPM, what rate of return does the firm have to offer to its levered equity lolders?
5. Has the firm’s weighted average cost of capital changed?
Calculate the formula value of the right for both the rights-on and the ex-rights cases. How much is the market price of the company's stock expected to drop on the ex-rights date, all other things being equal? Why?
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Tunney Industries can issue perpetual preferred stock at a price of $55.00 a share. The stock would pay a constant annual dividend of $4.50 a share. What is the company's cost of preferred stock, rp? Round your answer to two decimal places.
If market interest rates decline
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Stone & Co. bonds are selling at 95, yielding 5.25%, let's assume that yields increase by 25bps, causing the price to decline to 93. How much has the price changes, in percentage? Now let's assume that yields decrease by 25 bps, causing the price to ..
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Starting when you are 20 years old, you deposit $100 a year into an paying 5.50% interest compounded semi-annually. How much will you have in the account when you retire at the age of 65?
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A 3.90 percent coupon municipal bond has 15 years left to maturity and has a price quote of 104.40. The bond can be called in eight years. The call premium is one year of coupon payments. Compute the yield to maturity. Compute the yield to call.
Upon graduation from college, Lisa had accumulated a debt of $18,400. No interest was charged while she was in college, but the lending institution charges 8% interest compounded monthly starting at graduation. Lisa wishes to repay her debt as quickl..
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