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Suppose Fastest Company's current balance sheet showed book value weights of 31 percent debt, 10 percent preferred shares, and 59 percent common equity. Assuming its cost of debt was 3.2 percent, the cost of preferred shares was 5.6, and the cost of common equity was 8.7 pecent, estimates Fastest Company's WACC (based on these book value weights). Assume now that Fastest Company is not planning to issue preferred shares on the future, but anticipates a target capital structure of 36 percent debt and 64 percent common equity. Re-estimate Fastest Company's WACC.
The WACC in the 1st case:
In the 2nd case, the WACC is:
Arthur’s toys paid a dividend of $3.00 recently. Company projections made by Arthur estimate the dividend will remain at that level for years 1 and 2. Following this, the dividend is supposed to grow at a 10% rate for years 3 and 4. Finally, the divi..
A project has an initial cost of $35,000, expected net cash inflows of $8,000 per year for 7 years, and a cost of capital of 11%. What is the project's discounted payback period?
XYZ Corporation has a British supplier and an Argentinian buyer. Transactions with his UK supplier are denominated in UK pounds and transactions with his Argentinian buyer are denominated in Argentinian pesos. The UK supplier gives XYZ 30 days from t..
Rowan Company has a net profit margin of 8.3 percent, debt ratio of 41 percent, total assets of $4,332,200, sales of $7,182,600, and a dividend payout ratio of 57 percent. The firm’s management desires a sustainable growth rate (SGR) of 11 percent bu..
A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by trading a total of 400 options. The options are worth $11, $14, and $18. What is the maximum net gain (after the cost of the options is taken into account)?..
Consider a 20 year, $1000 bond with a coupon rate of 9% and quarterly coupons. By looking at Bloomberg you can see that this bond has most recently traded at a price of $1462.62. Give two numbers (a,b) such that the yield to maturity of bond is betwe..
The exercise price on one of Flanagan Company's options is $15, its exercise value is $23, and its time value is $6. What are the option's market value and the price of the stock?
Which of the following statements concerning multinational cash flow analysis is not correct?
Billy’s Exterminators, Inc., has sales of $740,000, costs of $288,000, depreciation expense of $40,000, interest expense of $30,000, a tax rate of 35 percent and paid out $50,600 in cash dividends. The common stock outstanding is 92,000 shares. What ..
PDQ Corporation is forecast to have total earnings of $1 billion next year and to pay out a total of 25% of these earnings to shareholders in the form of share repurchases and dividends. PDQ Corporation has 100 million shares outstanding. Its earning..
Red's Radical Rhinitis Solutions (RRRS), a pharmaceutical manufacturer wants to know what rate it should use to discount the cash flows generated by its assets. You have calculated RRRS' beta of assets as 2.8. You looked at long term historical data ..
What is the future value of an ordinary annuity of $1,000 per year for 7 years compounded at 10%? What would be the future value if it were an annuity due? What is the present value of a $1,000 perpetuity discounted back to the present at 8 percent?
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