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RON Ltd has the following capital structure components:
Five million shares issued with a current market price of 10. Equity holders require a 11% return.
$10 million face value of Corporate bonds outstanding. These bonds pay an annual coupon of 6% and currently trade at a yield to maturity of 6%.
If the firm faces a corporate tax rate of 30%, compute RON Ltd's Weighted Average Cost of Capital (WACC). Enter your answer in decimal form to FOUR decimal places. For example 10.34%, would be entered as 0.1034
You have decided to invest 30 percent in X; 30 percent in Y; and 40 percent in Z. The probability of the state of the economy is Boom 20%; Normal 55%; and, Bust 25%. The rate of return for stock X is Boom .15; Normal .10; and, Bust .00. What is the p..
Suppose a beverage company with a 13.4879% WACC is considering an investment in Stella’s Lemonade Stand. The project has the following cash flows: She needs $165,000; at time zero but expect the following cash flows: Based on IRR analysis should the ..
A five-year project has an initial fixed asset investment of $295,000, an initial NWC investment of $27,000, and an annual OCF of −$26,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
Our home construction company buys nails in 15-pound boxes. We use an average of 2215 boxes a year. The vendor that makes the nails can produce 33 boxes per day while our usage is 8 boxes per day. It costs $1.60 to place the typical order. Annual car..
One of the limitations of the balance sheet is that the dollar amounts for different assets reflect different levels of inflation. That is the result of the ________ assumption. Information is relevant if it has ________ and ________.
Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 26,000 shares of stock. The debt and equity option would consist of 15,000 shares of stock plus $250,000 of debt wi..
KMW Inc. sells finance textbooks for $150 each. The variable cost per book is $30 and the fixed cost per year is $30,000. The process of creating a textbook costs $150,000 and the average book has a life span of three years. What is the economic or N..
Martin and Sons (M and S) currently is an all equity firm with 64,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $86,000. How many of your shares of stock in M and S must you sel..
Titan Mining Corporation has 8.6 million shares of common stock outstanding and 300,000 5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.3, and the bonds have 15 yea..
Bank Capital: Explain the dilemma faced by banks when determining the optimal amount of capital to hold. A bank’s capital is less than 10 percent of its assets. How do you think this percentage would compare to that of manufacturing corporations? How..
The 6-month forward price of the S&P 500 Index is 1400 and the volatility of the index is 15%. What is the price of a put option that expires in 6 months if the strike price is 1450, risk free rate is 5% (continuous). The dividend yield on the is 3%
Describe and discuss the underinvestment problem.
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