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Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.1%. The bond is currently selling for a price of $1,120 and will mature in 10 years. The firm's tax rate is 34%. b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company? c. A new common stock issue that paid a $1.71 dividend last year. THe par value of the stock is $14, and the firm's dividends per share have grown at a rate of 7.6% per year. This growth rate is expected to continue into the foreseable future. THe price of this stock is now $27.38. d. A preferred stock paying a 9.2% dividend on a $126 par value. The preferred shares are currently selling for $145.54. e. A bond selling to yield 12.9% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.
You are considering an annuity that will pay you $1300 per year for 25 years, with the first payment made 15 years from now. How much are you willing to pay for the annuity if the interest rate is 2%?
You have been managing a $5 million portfolio that has a beta of 1.00 and a required rate of return of 12%. The current risk-free rate is 5.00%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.70, what wi..
Negus Enterprises has an inventory conversion period of 79 days, an average collection period of 49 days, and a payables deferral period of 20 days. Assume that cost of goods sold is 80% of sales. What is the length of the firm's cash conversion cycl..
You have identified the following information for the competitors of a firm that you are analyzing. Given that the firm has 100M shares outstanding how much should it be worth in the market?
Residential Inc. produced substantial profits in the previous year. Assume that Residential pays 35% corporate income tax. If investors are taxed at 25% on ordinary income, and have 0% capital gains tax, would Residential’s common stock investors pre..
A firm has a debt-equity ratio of 0.45 and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at 1.25.If the firm would like to have a sustainable growth with a value of 6 percent per year, what profit margin must t..
Becky Fenton has 70/140/80 automobile insurance coverage. If two other people are awarded $115,000 each for injuries in an auto accident in which Becky was judged at fault, how much of this judgment would the insurance cover?
You have a portfolio that consists of equity ownership in three firms. You own 800 shares of Stout Drink Company (SDC), 600 shares of Carbon Computing (CC) and 650 shares of Serrano Foods (SF). Their current share prices are $114, $20, and $122, resp..
Suppose your portfolio mirrors S&P500 index and is valued currently at $1,000,000. The S&P 500 index is currently at 2,000. What action is needed to provide protection against the value of the portfolio falling below $950,000 in 6 months?
What are some indications that investors are risk averse? How would you as a portfolio manager support these investors? What kind of recommendations would you make? What would you recommend as a portfolio manager to reduce the risk for a risk adverse..
The beranek company whose stock price in now $25 need to raise $20 million in common stock. Under writers have informed the firms management that they must price the new issue to the public at $22 per share because of signaling effects. How many shar..
Sasha is bartending at The Right Round, a nearby pub, because her new song isn’t selling very well. She sees Joe-Lo, a regular customer at The Right Round, is clearly intoxicated. He asks her for one more round of drinks before he leaves. Did defenda..
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