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Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt-equity ratio of .48, but the industry target debt-equity ratio is .38 The industry average beta is 1.1. The market risk premium is 8 percent, and the risk-free rate is 5.7 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 55 percent. The project requires an initial outlay of $485,000 and is expected to result in a $90,000 cash inflow at the end of the first year. The project will be financed at Blue Angel's target debt-equity ratio. Annual cash flows from the project will grow at a constant rate of 5.7 percent until the end of the fifth year and remain constant forever thereafter.
(a) Calculate net present value.
(b) Should Blue Angel invest in the project?
Stock B has expected return of 16% and standard deviation of 35%. Stock C has expected return of 12% and standard deviation of 22%. Their returns have correlation of 0.15.
Your goal is to create a portfolio that has an expected return of 17 percent. Stock X has an expected return of 14.8 percent and a beta of 1.35, and Stock Y has an expected return of 11.2 percent and a beta of 0.90.
First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually.
What is the expected return on the firm's equity before the announcement of the stock repurchase plan and what is the value of equity after the announcement of the stock repurchase plan?
As a jewelry store manager, you want to offer credit, with interest on outstanding balances paid monthly. To carry receivables, you must borrow funds from your bank at a nominal 6%, monthly compounding.
The remainder was paid within the 30-day term. At the end of the annual accounting period, December 31, 2010, 90% of the merchandise had been sold and 10% remained in inventory. The company uses a periodic system.
Russo's Gas Distributor, Inc. wants to determine the required return on a stock with a beta coefficient of 0.5. Assuming the risk free rate of 6 percent and the market return of 12 percent.
A 8.3 percent coupon bond with 16 years left to maturity is priced to offer a 6.65 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.4 percent.
This year Lloyd, a single taxpayer, estimates that his tax liability will be $10,000. Last year, his total tax liability was $15,000. He estimates that his tax withholding from his employer will be $7,800.
At Jarvie's current shop, Bad Dog Cycles, each employee is allowed to purchase four bicycles a year at a discount. Bad Dog has an average gross profit percentage on bicycles of 25 percent.
In contrast, a 10 year Treasury bond has an interest rate of 3.7%. If inflation is expected to average 1.5 percentage points over both the next 10 years and 30 years
The project requires an initial investment in net working capital of $294,000. The project is estimated to generate $2,352,000 in annual sales, with costs of $940,800.
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