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1. Which of the following is an advantage of the net present value (NPV) technique for evaluating cash flows?
A. Ease of understanding. B. 100% accurate. C. Discount rate adjusts for risk. D. Easy comparison of separate NPV projects.
2. Bleakly Enterprises has a capital structure of 45 percent common stock, 5 percent preferred stock, and 50 percent debt. The flotation costs are 4.5 percent for debt, 7 percent for preferred stock, and 9.5 percent for common stock. The corporate tax rate is 34 percent. What is the weighted average flotation cost?
5.83 percent
6.20 percent
6.42 percent
6.67 percent
6.88 percent
Describe an example of a real-world industry or market that would be considered by economists to be a natural monopoly. What characteristics of the industry make it a monopoly? What is the impact of the monopoly power on its customers? Why might gove..
Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 36% of the company’s present value, and you believe that at this capital structure the company’s d..
J. Smythe, Inc., manufactures fine furniture. The company is deciding whether to introduce a new mahogany dining room table set. The set will sell for $6,300, including a set of eight chairs. The equipment is depreciated on a seven-year MACRS schedul..
Company ABC has an optimal capital structure of 40% debt and 60% common equity. Assume that the debt break points occur at $36 million and $50 million, and that the common equity break point occurs at $45 million. The after tax cost of debt is 6%, 10..
The current price of a non-dividend-paying stock is $58. Over the next six months it is expected to rise to $85 or fall to $44. Assume the risk-free rate is zero. What is the risk-neutral probability of that the stock price will be $44 (i.e. the risk..
Which of the following statements is correct? Portfolio diversification reduces the variability of the returns on the individual stocks held in a portfolio. Portfolio A has but one security, while Portfolio B has 100 securities.
Suppose a 10-year, $1,000 bond with a 7% coupon rate and semi annual coupons is trading for a price of $1,195.23. What is the bond's yield to maturity (expressed as an APR with semi annual compounding.)? If the bonds yield to maturity changes to 9% A..
You want to buy a new sports coupe for $73,900, and the finance office at the dealership has quoted you a loan with an APR of 6.3 percent for 72 months to buy the car. What will your monthly payments be? What is the effective annual rate on this loan..
You are considering undertaking a land improvement practice that will cost you $120 per acre to establish and an additional $8 per acre to maintain over the next 10 years. Assuming a real discount rate of 4%, what is the present value of the total co..
a 16 debenture of r5 000 is redeemable at a premium of 10 after 5 years. the fair rate of return on similar debentures
Keenan Co. is expected to maintain a constant 5.2 percent growth rate in its dividends indefinitely. - If the company has a dividend yield of 6.3 percent, what is the required return on the company's stock?
Assume the cost of market basket of goods in UK is 2500 pounds and $4500 in the US. Please use the absolute purchasing power parity to find the exchange rate dollar per pound. If the actual exchange rate is 1.7 dollar per pound, is the dollar underva..
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