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Meacham Corp. wants to issue bonds with a 9% coupon rate, a face value of $1,000, and 12 years to maturity. Meacham estimates that the bonds will sell for $1,090 with issuing (flotation) costs will equal $15 per bond - which reflects an 8% before tax cost of debt on the bonds. Meacham's preferred stock currently sells for a price of $36 per share, and their dividend payment is 8% on these $100 par value preferred stocks. Meacham's common stock has a beta of 1.4 and the risk free rate associated with common stock is 4%. The average return of the market as a shoe for common stocks is 10%. Meacham's marginal tax rate is 38%. Meacham's capital structure is 40% debt, 50% common equity, and 10% preferred stock.
a. Calculate the after-tax cost of debt assuming Meacham's bonds are its only debt.b. Calculate the cost of preferred stock.c. Calculate the cost of common stock/equity.d. Calculate the weighted average cost of capital for Meacham's $30 million capital budget.
The expiration date of the options are six months from now. The risk free interest rate is 5% per annum. What is the fair price for this portfoilio. Why?
Discuss the components of microeconomics OR macroeconomics, explaining why they are important to financial planners.
The Superbowl Champs, New York Giants plans to play in United Kingdom next year. All expenses will be paid by British government and the Giants will receive check for $1million pounds. The team anticipates that the pound will depreciate substantia..
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Ranney, Inc has sales of $14,900, costs of $5,800, depreciation expense of $1,300 and interest expense of $780. If the tax rate is 40%, what is the operating cash flow?
If the face value of each bond is $1,000, how many bonds must be issued to net the $75 million? Assume that the firm cannot issue a fraction of a bond.
Groupon is a popular group purchasing and daily deals website. In a recent advertisement, a local restaurant to sold buffet vouchers at a steep discount on its website.
Do you think the percentage of sales method may be more or less accurate in predicting the company's likely balance sheet?
Assume Johnson & Johnson and the Walgreen Co. have expected returns and volatilities shown below, with a correlation of 22 percent.
When you retire, you plan to withdraw an equal amount for each of the next 25 years at the end of each year and have nothing left. Additionally, when you retire you will transfer your money to an account that earns 6.75 percent.
Since this firm is risky, the required rate of return is 15%. Based on the above information, do you think the offer price is fair? Please explain.
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