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Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.8, 1.0, 1.5, and 1.7, respectively. Assume all current and future projects will be financed with half debt and half equity, the current cost of equity (based on an average firm beta of 1.0 and a current risk-free rate of 7 percent) is 12 percent and the after-tax yield on the company’s bonds is 8 percent. What will the WACCs be for each division?
twin oaks health center has a bond issue outstanding with a coupon rate of 7 percent and four years remaining until
Talbot Enterprises recently reported an EBITDA of $7.0 million and net income of $2.45 million. It had $2.03 million of interest expense, and its corporate tax rate was 30%. What was its charge for depreciation and amortization? Enter your answer in ..
markets are in equilibrium
Mace Auto Parts Company sells to retail auto supply stores on credit terms of "net 60". Annual credit sales are $300 million (spread evenly throughout the year) and its accounts average 28 days overdue. The firm's variable cost ratio is 0.75 (i.e., v..
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)?..
Assume the following regarding a growing annuity problem: Your salary at the end of the last year that you work is $90,000. You would like your income stream to begin at the end of your first year of retirement with a payment equal to 70% of your las..
Suppose that you read in The Wall Street Journal that a bond has a coupon rate of 9 percent, a price of 71.375% (of face value) , and pays interest annually. Rounded to the nearest whole percent, what would be the bond’s “current” yield? A 12-year bo..
Which of the following argued that the value of a firm is independent of its capital structure?
Did you ever stop to think about the importance of the finance function for a successful, multinational company (i.e, McDonalds, Apple, Johnson & Johnson, etc)? Project Cash Flows and Risk (cash flows, project evaluation, replacement analysis, accep..
Discuss qualitatively how you might have incorporated the likely growth of digital photography in the sales projections developed above? (Remember hindsight is 20-20.)
Present Value and Multiple Cash Flows [LO1] Investment X offers to pay you $5,200 per year for eight years, whereas Investment Y offers to pay you $7,300 per year for five years. Which of these cash flow streams has the higher present value if the di..
A partial balance sheet and income statement for King Corporation follow: The trade receivables at December 31, 2010, were $280,000, net of an allowance of $8,000, for a gross receivables figure of $288,000. The inventory at December 31, 2010, was $5..
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