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Merrill Lee Limited has the following information and a tax rate of 30 percent. . Debt 3,000, 6 percent coupon bonds outstanding, $1,000 par value, 12 years to maturity, selling for 80 percent of par, the bonds make semiannual payments Common stock 100,000 shares outstanding, selling for $55 per share; the beta is 1.20 Preferred stock 19,000 shares of 6 percent preferred stock outstanding, currently selling for $110 per share Market 6 percent market risk premium and 4 percent risk-free rate A. Determine the following for the company:
(a) Total Market value
(b) After-tax Cost of Debt
(c) Cost of Common Stock
(d) Cost of Preferred Stock
e) WACC
The flow of funds through a firm would be as follows:
We have the Goncalves par bond paying a coupon rate of 8% and having a maturity of 20 years. If the coupon rate of Goncalves were to alter to 4%, what would the new duration be? What is the meaning of duration? Under what circumstances would duration..
Pierce Furnishings generated $4 million in sales during 2012, and its year-end total assets were $2.6 million. Also, at year-end 2012, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,..
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If the firm's opportunity cost is 11 percent, would it be economically advisable for the firm to pay an annual fee of $84,000 for a lockbox system that reduces collection float by 2.5 days? Explain why or why not.
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What is the nominal rate of interest compounded quarterly? What is the effective rate?
Find the interest rates earned on each of the following. You borrow $710 and promise to pay back $781 at the end of 1 year. You borrow $82,000 and promise to pay back $293,821 at the end of 7 years.
Suppose you have a short position in a 30-year 6%-coupon bond and a long position in a zero- coupon bond with exactly the same market value and duration. If all zero rates fall by 20 basis points, will your net position rise or fall in value? Explain..
You invest $3,000 annually in a mutual fund that earns 10% annually, and you reinvest all the distributions. How much will you have in the account at the end of 20 years?
Under/Over Valued Stock A manager believes his firm will earn a 11.35 percent return next year. His firm has a beta of 1.39, the expected return on the market is 8.9 percent, and the risk-free rate is 3.9 percent. Compute the return the firm should e..
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