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B&B Inc. has a book value of debt of $500,000. The market value of debt is $550,000. Its pre-tax cost of debt is 10%, and its beta is equal to 2. The tax rate is 40%. The firm has an annual EBIT of $200,000. In the market, you observe that T-bills are being sold to yield 1%, and the S&P/TSX Composite Index is expected to yield 6%.
What is B&B’s weighted average cost of capital? Assume there is no cost of financial distress.
You have decided to buy a house and need to save for the down payment. You have currently $10,000 in an account for that purpose. You estimate you will need to accumulate $80,000 for the down payment at the end of 6 years. If you put down the $80,000..
Chartreuse County Choppers Inc. is experiencing rapid growth. The company expects dividends to grow at 15 percent per year for the next 8 years before leveling off at 6 percent into perpetuity. The required return on the company’s stock is 12 percent..
A cash flow sequence is described by 1000 + 50k, where k is in years. The sequence extends from year one through year eleven. The interest rate is 8% per year. What is the value of G; What is the cash flow amount in year five; Calculate the present w..
What is the future value of twenty monthly deposits that start at $35 but then increase by 5% a month in an account that earns 5% per month?
A stock has a beta of 1.24, the expected return on the market is 11.8 percent, and the risk-free rate is 4.55 percent. What must the expected return on this stock be?
What does it mean if a domestic mutual fund has a beta coefficient of 1.25, an alpha coefficient of 2.25 and an R-Square of 75. Explain each measurement and then interpret what these measurements mean for this mutual fund
Ideally a leading indicator of a variable of interest should be used as
DYI construction co. is considering a new inventory system that will cost $750,000. the system is expected to generate a positive cash flows over the next four years in the amount of $350,000 in one year, $325,000 in year two, $150,000 in year three,..
Suppose European put and calls exist on the same stock, each with X = $75 and the same expiration date. The current stock price is $68. The current price of the put is $3.50 higher than that of the call, and a risk-free investment over the life of th..
The Cracker Barrel has a beta of 0.98, a dividend growth rate of 3.2 percent, a stock price of $33 a share, and an expected annual dividend of $1.06 per share next year. The market rate of return is 11.2 percent and the risk-free rate is 3.7 percent...
Using a diagram, illustrate how cognitive biases can affect management decisions and risk-taking. Provide a conceptual model for how data and risk analytics can affect risk-taking by the firm via its impacts on cognitive bias.
New Jersey Waster Co. (NJWC) is considering whether to refund a $50 million, 14 percent coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $3 million of flotation costs on the 14 percent bonds over the 30-year life of that issue. ..
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