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The Horizon Corp. has 40 million shares of common stock with a current market price of $14.00 per share. They have $270 million in par value of long-term bonds outstanding that currently sell for $935 per $1,000 par value. The bonds have a coupon rate of 7.6% and a maturity of 20 years. Assume annual coupon payments. Horizon also has $120 million in par value of preferred stock with a current market price of $108 per $100 of par value. The dividend on this preferred stock is $8.80 per year. Flotation costs on new preferred stock will be about 3%.
The dividend on common stock in the most recent year (i.e. D0) was $0.60. The firm has a growth rate of 4.5% that is expected to continue indefinitely into the future. On new common stock flotation costs would be about 8%. Flotation costs on new bonds would be negligible.
1. Discuss, in general terms, how a firm’s investment policy can affect its WACC
2. Explain how a company’s capital structure policy could affect its WACC
A firm has 2,000,000 shares of common stock outstanding with a market price of $2.00 per share. It also has 2,000 bonds outstanding, each selling at its par value of $1,000. The bonds have a coupon rate of 7%. The firm's equity beta is 1.2, the risk-..
Abc company had beginning retained earnings of $1.198. During the year, the company reported sales of $21, 449, costs of $6,696, depreciation of $1.744, dividends of $737, and interest paid of $2, 118. The tax rate is 15%. What is the retained earnin..
a publisher sells books to borders at 12 each. borders prices the book to its customers at 24 and expects demand over
Cede & Co expects its EBIT to be $63,000 every year forever. The firm can borrow at 7%. Cede currently has no debt, its cost of equity is 13% and the tax rate is 35%. Assume the company borrows $169,000 and uses the proceeds to repurchase shares. Wha..
On a personal level, is it better to lease or own vehicles? Remember, this is one of those questions that sound like I am merely asking one’s opinion but ultimately I am seeking expanded research to support those opinions. ;)
You have $18,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 16 percent and Stock Y with an expected return of 11 percent. Assume your goal is to create a portfolio with an expected return of 12.10 percent. Req..
Consider two investments. The two investments have the same expected return and the same variance of returns.
Suppose you take out a loan for $24,475 to purchase a 2016 Nissan Altima. Nissan offers $500 cash back (which you use as part of the down payment), and you also put $2,299 of your own money down (so a total down payment of $2,799). After three years..
A share of preferred stock has a par value of $30. It pays a 3% dividend. If the required return is 7 % ?, what is the price of the stock? If preferred stock sold for $81 a share and $2.35 dividends were paid annually, what would be the required rate..
Bunge Corp. is expected to maintain the same payout ratio in the future as in the current year (problem #7), and the expected return on new investments for Bunge is 10%. What is the maximum sustainable growth rate for Bunge’s dividends in the long ru..
Many accounting and accounting-related professionals are skilled in financial analysis, but most are not skilled in manufacturing. This is especially the case for process manufacturing environments (for example, a bottling plant or chemical factory)...
Mark Sexton and Todd Story have been discussing the future of S&S Air. The company has been experiencing fast growth, and the two see only clear skies in the company's future. At the end of the discussion, Mark asks Renata about the Dutch auction IPO..
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