Different component cost than the investors required return

Assignment Help Financial Management
Reference no: EM131020956

The internal cost of common equity is the same as the common stockholder’s required return. Explain why this relationship is true while the component costs of debt, preferred stock, and external common equity have a different component cost than the investors required return.

Reference no: EM131020956

Questions Cloud

What is its sustainable growth rate : Rocky Sales, Inc., has current sales of $1,268,864 and net income of $203,018. It also has a debt ratio of 47 percent and a dividend payout ratio of 69 percent. The company’s total assets are $587,439. What is its sustainable growth rate? (Round answ..
Company will also pay out a liquidating dividend : JJ Industries will pay a regular dividend of $1.70 per share for each of the next four years. At the end of four years, the company will also pay out a liquidating dividend. If the discount rate is 12 percent, and the current share price is $62, what..
Evaluating mutually exclusive capital budgeting projects : When evaluating mutually exclusive capital budgeting projects, the NPV and IRR could conflict with each other in the ranking of projects. List and explain three reasons why a conflict could exist. Which technique is best to use in a conflict? Explain..
Execute an arbitrage and determine the size of the profit : Today, the spot price of gold is $700/oz. The market price of a 7-month gold futures contract today is $750. The riskfree rate is 9% p.a. The storage cost of gold is 1% p.a. of the gold price and is payable over the life of storage. Show step by step..
Different component cost than the investors required return : The internal cost of common equity is the same as the common stockholder’s required return. Explain why this relationship is true while the component costs of debt, preferred stock, and external common equity have a different component cost than the ..
Debt-to-total assets ratio : Krisle and Kringle's debt-to-total assets ratio is 0.445 (i.e., debt ratio = 44.5%). What is the company’s debt- to-equity ratio? (Enter answer as a ratio rounded to 2 decimal places – that is, do not convert to a percent; for example, enter 80/35 = ..
Average accounts receivable balance : Knight Roundtable Co. has annual credit sales of $576,000 and an average collection period of 35 days in 2008. What is the company’s average accounts receivable balance?
Dreamworld corportation began construction of new warehouse : The average accumulated expenditures for 2017 by the end of the construction period was:$1,100,750.$2,203,000.$1,416,200.$1,754,200.
What is your effective rate of interest : Your bank will lend you $4,600 for 55 days at a cost of $40 interest. What is your effective rate of interest?

Reviews

Write a Review

Financial Management Questions & Answers

  An unlevered corporation has net income

An unlevered corporation has net income of $50,000 and a required rate of return of 14%. What would the value of this firm be if it borrowed $125,000 to buy back some of its stock? Assume a corporate tax rate of 35%. Show work

  What is the amount of the firms total stockholders equity

Purple Dalia, Inc. has the following balance sheet items: current liabilities of $818,046; net fixed and other assets of $1,785,530; total assets of $3,087,260; and long-term debt of $759,092. What is the amount of the firm’s total stockholder’s equi..

  Period of depressed earnings performance

Excel Corporation has recently witnessed a period of depressed earnings performance. As a result, cash dividend payments have been suspended. Investors do not anticipate a resumption of dividends until 2 years from today, when a yearly dividend of $0..

  Fixed-rate mortgage-how large can his mortgage be

A homeowner is looking to buy a home in Marvin Gardens. The most he can afford to pay in total is $1,800 per month. Yearly property taxes will be about $3,000 (escrowed monthly) and insurance is $110 per month. There are no other costs. If mortgage r..

  Company pledges to increase its dividend

Mickelson Corporation will pay a dividend of $2.74 per share next year. The company pledges to increase its dividend by 6 percent per year indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company’s..

  Start saving for retirement plan

Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $69,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next yea..

  What is the projects net present value

East Coast Television is considering a project with an initial outlay of $X (you will have to determine this amount). It is expected that the project will produce a positive cash flow of $60,000 a year at the end of each year for the next 13 years. T..

  Simple interest on its investment accounts

First Simple Bank pays 9 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 1..

  What is the value of mildreds tavern corps stock

Mildred's Tavern Corp pays an annual dividend rate of 11.80% on its preferred stock that currently returns 15.81% and has a par value of $100.00. What is the value of Mildred's Tavern Corp's stock?

  Assets as percentage of total assets in balance sheet

Which institution, University of Texas and a local bank, do you expect to have more tangible assets as a percentage of total assets in its balance sheet? And why?

  Cash flow impact and the projects net present value

COMM Company is considering an investment in a new inventory control system. The system will require a substantial up-front investment but is expected to provide annual cash cost savings for the next 6 years. Prepare an exhibit that displays the outc..

  Mutual fund-annual rate of return

Suppose you are committed to owning a $207,000 Ferrari. If you believe your mutual fund can achieve a 13 percent annual rate of return and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd