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The firm plans to spend $100,000,000 on new capital projects. New bonds can be sold at par with an 8% coupon rate. Preferred stock can be sold with a dividend of $2.75, a par value of $25.00, and a floatation cost of $2.00 per share. Common stock is presently selling at $35.00 per share. The last dividend paid was $3.00 and the firm expects to grow at a rate of 4% in the foreseeable future. The firm's marginal tax rate is 40%. Calculate the firm’s weighted average cost of capital.
A company has favorable financial leverage when it uses borrowed funds to earn a higher rate of return than the rate of interest paid for the borrowed money.
A clearly understood investment policy statement is not critical for which one of the following? Defined benefit pension funds. Mutual funds
Stock Y has a beta of 1.05 and an expected return of 13 percent. Stock Z has a beta of .70 and an expected return of 9 percent. If the risk-free rate is 5 percent and the market risk premium is 7 percent, are these stocks correctly priced?
You are considering a 20-year, $1,000 par value bond. Its coupon rate is 11%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 8.84%, how much should you be willing to pay for the bond?
1. a common stock will have a price of either 85 or 35 in 2 months. a two month put option on the stock has a strike
bonds and term structure1. graph the bond yield to maturity ytm on the y-axis of an xy-scatter plot with the bond to
A bank estimates that its profit next year is normally distributed with a mean of 0.8% of assets and the standard deviation of 2% of assets. How much equity (as a percentage of assets) does the company need to be (a) 99% sure that it will have a posi..
Which inventory costing method should a company use when it wants to minimize taxes? Does your response depend on whether prices are rising or falling? Explain your answer.
A company's 5-year bonds are yielding 9.9% per year. Treasury bonds with the same maturity are yielding 5.15% per year, and the real risk-free rate (r*) is 2.65%. The average inflation premium is 2.1%, and the maturity risk premium is estimated to be..
On 3 August 2011 Ross Creek Ltd declared and paid a dividend of $10000 from profits earned prior to its acquisition by Sebastopol Ltd. The directors consider that the value of the investment in Ross Creek Ltd has been impaired and have adjusted the p..
Do you feel that the fixed price contract agreed to by FRC was the best way to procure ACME's computer system and where did FRC go wrong in purchasing the software system
Consider a firm that has assets worth $1,000,000 today. It has a single zero-coupon debt issue with face value $800,000 and a time-to-maturity of five years. What is the risk-neutral probability that the firm will survive to T = 5? What is the value ..
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