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WACC and Percentage of Debt Financing Hook Industries' capital structure consists solely of debt and common equity. It can issue debt at rd = 8%, and its common stock currently pays a $2.25 dividend per share (D0 = $2.25). The stock's price is currently $32.75, its dividend is expected to grow at a constant rate of 5% per year, its tax rate is 40%, and its WACC is 12.15%. What percentage of the company's capital structure consists of debt? Round your answer to two decimal places.
Would your portfolio be riskless? Explain. Now suppose the portfolio consists of $250,000 of 30-day Treasury bills. Every 30 days your bills mature, and you will reinvest the principal ($250,000) in a new batch of bills. You plan to live on the inves..
Explain the importance of identifying the primary source of repayment. Clearly, the primary source of repayment is always cash. The analysis question is really one of identifying the source of the cash used to repay the loan. Explain the advantages a..
Carla Lopez deposits $7980 a year into her retirement account. If these funds have an average earning of 3 percent over the 19 years until her retirement, what will be the value of her retirement account?
The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury s..
Explain the relevance of interest rate parity in cross border capital budgeting and cross border acquisitions. How do project selection rules changes if interest rate parity conditions are not met due to market imperfections or private exchange rate ..
Explain how your business would likely be affected if the central bank of Mexico used indirect intervention by lowering Mexican interest rates (assume inflationary expectations have not changed).
Cavo Corporation expects an EBIT of $23,000 every year forever. The company currently has no debt, and its cost of equity is 15 percent. The corporate tax rate is 35 percent. What is the current value of the company? What will the value of the firm b..
NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $0.47 a share. The following dividends will be $0.52, $0.67, and $0.97 a share annually for the following three years, respec..
How do you calculate the expected annual free cash flows as opposed to annual cash flows? The problem asks for the calculation both was at different sales levels.
Stocks of Z-Cruise are currently selling for $30 per share. The price is expected to be $32 per share a year from now. You decide to buy a few shares of the stock and sell them one year from now. If your expected holding period return is 12%, what is..
A company currently has $2.40 per share in free cash flows to equity (FCFE). The FCFE are anticipated to grow to 6% per year. The investors required retune is 14%, what is the anticipated value of the firm at the end of 3 years? A portfolio has a sta..
$200,000 of 6%, 25-year bonds were sold for $190,000 on January 1. The bonds require semi annual interest payments on June 30 and December 31. What is the journal entry to record the June 30 interest payment on the bonds?
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