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Hook Industries capital structure consists solely of deb and common equity. It can issue debt at rd = 11% and its common stock currently pays a $2.00 dividend per share. The stock's price is currently $24.75, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 35%, and its WACC is 13.95%. What percentage of the company's capital structure consists of debt?
Would high quality bonds higher or lower coupons everything else the same? Which one would be more sensitive to changes in the interest rates, high quality or low quality?
Your firm is contemplating the purchase of a new $560,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $56,000 at the end of that time. If the tax rate is 34 percent..
Magnus Credit Corp. wants to earn an effective annual return on its consumer loans of 15.5 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?
Using the free cash flow method of valuation, an analyst determines the value of Company A's stock to be $12 and the value of Company B's stock to be $15. Other things be held constant, what could account for the higher valuation for Company B?
Your firm sells for cash only; but it is thinking of offering credit, allowing customers 90 days to pay. Customers understand the time value of money, so they would all wait and pay on the 90th day. To carry these receivables, you would have to borro..
Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $120,000 and sell its old low-pressure glueball, which is fully depreciated, for $20,000. What is the equivalent annual savings from the purchase..
The financial analysts at Bearings and Nuts Limited a local conglomerate wants hedge the exposure of a variable interest rate loan it negotiated last year. Due to an uncertain economic environment, the fluctuation of local interest rate might affect ..
Seether Co. wants to issue new 11-year bonds for some much-needed expansion projects. The company currently has 8.7 percent coupon bonds on the market that sell for $959.22, make semi-annual payments, and mature in 11 years. The company should set a ..
Suppose a stock had an initial price of $72 per share, paid a dividend of $1.15 per share during the year, and had an ending share price of $81. Compute the percentage total return.
A stock is expected to pay a dividend of $2.25 the end of the year (that is, D1 = $2.25), and it should continue to grow at a constant rate of 9% a year. If its required return is 13%, what is the stock's expected price 4 years from today?
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $496,000 is estimated to result in $195,000 in annual pretax cost savings. The press also requires an initial investment in spare..
The Postal Service has just awarded Steve an additional contract that will require Steve to purchase six new tractors. He competed aggressively for the contract and spent a total of $45,000 in costs to prepare and submit the bid. Steve has narrowed h..
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