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Predators is a multi-divisional firm involved in a number of infrastructure related projects spanning construction, engineering design, and power transmission. To finance its growth during this period of high government spending, new stocks and bonds can be issued in any amount. New bonds would pay a 6% annual coupon. Covenants on the firm's existing bonds limit it to a maximum debt/equity ratio of 0.8 and its tax rate is 30%. Since the company is involved with a number of different projects, your supervisor has asked you to use the pure play approach to estimate the appropriate cost of capital for the construction division. As a comparison, he has provided you with the following information regarding two of the firm's construction-focused competitors. Diggem Inc: this year's dividend = $1.65, sustainable dividend growth = 6%, stock price = $18.45, D/E = 0.6, tax rate = 25%, rD = 6% Skyreach Inc: Beta = 1.7, D/E = 0.9, Risk-free rate = 2%, expected market return = 10.65%, tax rate = 20%, rD = 8% Assuming that Predators maintains a constant debt/equity ratio of 0.8, what is Predators appropriate cost of capital for a project in the construction division?
If the CAPM is used to estimate the cost of equity capital, the expected excess market return is equal to
The spot price of copper is $70 per ounce. The 9-month forward price is $72.13. The continuously compounded risk-free rate is 5%. What is the annualized lease rate for this copper contract?
If the financial markets are semi strong form efficient, then: every security offers the same rate of return. Only individuals with private information have a marketplace advantage. no one individual has an advantage in the marketplace. Only the most..
Maverick Milling Co. just paid a dividend of $1.00 to its shareholders. The firm is expecting high growth over the next few years and is projecting the dividend to grow by 15% in the first year, 20% in the second year, and $15% in the third year, bef..
All else equal an increase in beta results in? an increase in the cost of retained earnings an increase in the cost of common equity whether or not the funds come from retained earnings or newly issue common stock an increase in the cost of newly iss..
You own a stock portfolio invested 15 percent in Stock Q, 33 percent in Stock R, 40 percent in Stock S, and 12 percent in Stock T. The betas for these four stocks are 1.4, .5, 1.5, and .8, respectively. What is the portfolio beta? What is the beta o..
What is SSP's net investment required in the FMC? Assume that both pieces of equipment are being depreciated to a zero salvage value?
On Feb 29th, the dollar to euro spot rate was $1.1300/€ and the 3-month forward rate was $1.1500/€. Calculate the annualized forward premium on the euro (against the dollar) Calculate the annualized forward premium on the dollar (against the euro)
You are 30 years old and planning to retire at age 62. You want to plan your finances for living 35 years past age 62 and then die dead broke. You determine that you will need $3000 per month for the 35 years. At age 62, you plan to go live in the tr..
The Cremmins Coat Company has recently completed a period of extraordinary growth, due to the popularity of its yellow jackets. Earnings per share have grown at an average compound annual rate of 15 percent, while dividends have grown at a 20 percent..
Total costs were $76,700 when $26,000 units were produced and $95,000 when 37,000 units were produced. Use the high-low method to find the estimated cast for a production level of 32,000 units.
Bond Y is no callable, has 10 years to maturity, a 8% annual coupon, and a $1,000 par value. If you buy it, you plan to hold it for 4 years. You and the market have expectations that in 4 years the yield to maturity on a 6-year bond with similar risk..
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