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Capital Co. has a capital structure, based on current market values, that consists of 40 percent debt, 3 percent preferred stock, and 57 percent common stock. If the returns required by investors are 8 percent, 11 percent, and 19 percent for the debt, preferred stock, and common stock, respectively, what is Capital’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.) After tax WACC =
Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 12 percent and standard deviation of 25 percent. The average return and standard deviation of Idol Staff are 15 percent and 35 percent..
A bond matures in 30 years, has a 20 year duration and a yield to maturity of 9.32%. The change in the level of the market interest rate is 0.47%. What is the modified duration and the percentage change in price? What is the tax-equivalent yield of a..
Assume that your cousin holds just one stock, Eastman Chemical Bonding (ECB), which he thinks has very little risk. You agree that the stock is relatively safe, but you want to demonstrate that his risk would be even lower if he were more diversified..
Staal Corporation will pay a $2.82 per share dividend next year. The company pledges to increase its dividend by 3 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company’s stock ..
Calculating Returns [LO1] Suppose you bought a bond with an annual coupon of 7 percent one year ago for $970. The bond sells for $940 today. What was your total nominal rate of return on this investment over the past year?
The value of a financial asset is the ____
Describe the basic business of each of the following types of financial companies. Then explain why the firm in parentheses would want to operate as part of a financial holding company, or as part of a bank.
What is the value on 1/1/13 of the following cash flows?
Mr. G. Buffon has been hired to manage pension fund for Zaza Company, a small information technology firm. The company currently has $20 million in the fund and expects to have cash inflows of $4 million a year for the first six years followed by cas..
Discuss the concept of reliability. In your opinion, would the amounts reported by U.S. companies for property, plant, and equipment be more or less reliable than the current cost amounts reported by companies in England, Mexico, or elsewhere?
Phoenix Industries has pulled off a miraculous recovery. Four years ago it was near bankruptcy. Today, it announced a $1 per share dividend to be paid a year from now, the first dividend since the crisis. If the firm’s investors expect to earn a retu..
Dew Drop In, Inc. announces is quarterly dividend will increase from $3.80 to $4.00. After the announcement, the price of Dew Drop In, Inc.'s stock drops. The most likely explanation is that the stock market is a perfect market. investors were expect..
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