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Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $1.80 and it expects dividends to grow at a constant rate g = 4.4%. The firm's current common stock price, P0, is $26.00. The current risk-free rate, rRF, = 4.1%; the market risk premium, RPM, = 5.4%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 7.55%. The firm uses a 3.4% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places.
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $10 million but realizes after-tax inflows of $4 million per year for 4 yea..
If you were the CEO, would you approve this proposal? Why or why not?
You decide to take a 30 year mortgage of $150,000 offered by the bank of Montreal. Instead of making the monthly payment of $957.68 every month, you can make half the payment every two weeks ( so that you will make 52/2=26 payments a year). How long ..
A trustworthy businessman, who has a sound reputation in importation of fruits and vegetables is looking to expand his business, but doesn’t have sufficient capital. On the expansion, he is willing to use his expertise if he can find someone to help ..
What is a current account deficit? Specifically, what does it mean that the U.S. isrunning a current account deficit? How does a current account deficit benefit U.S. citizens? Howdoes a current account deficit hurt U.S. citizens?
Two alternative investment proposals are under consideration for a vacant owner by Urban Development Corporation. Plan A would require an immediate investment of $120,000 and first-year expenditure for property taxes, maintenance, and insurance of $4..
The Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $1,400 every six months over the subsequent eight years, a..
The accountants of Coca-Cola just determined using the regression method that soybean futures barely qualify for hedging its exposure to variations in cost of goods sold( R-squared = 0.81). What can you conclude about the correlation between soybean ..
Predicting Winning Percentage for the NFL The National Football League (NFL) records a variety of performance data for individuals and teams (NFL website). Some of the year-end performance data for the 2005 season appear in the file named NFLStats.
Benson Corporation announced that its net income for the year ended June 30, 2015 is $1,400,000. The company also reported EBITDA of $5,000,000, and depreciation and amortization expense of $1,250,000. If the company's income tax rate is 50 percent, ..
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..
Additional paid-in capital refers to:
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