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Which of the following statements is CORRECT? (Hint: Take a look at the WACC equation and the equations for the component costs of capital. It should become much clearer to you.)
A. All else equal, an increase in a company’s stock price will increase its marginal cost of new common equity, re.
B. If a company’s tax rate increases but the YTM of its noncallable bonds remains the same, the after-tax cost of its debt will fall.
C. When calculating the cost of preferred stock, a company needs to adjust for taxes, because preferred stock dividends are tax deductible.
D. All else equal, an increase in a company’s stock price will increase its marginal cost of retained earnings, rs.
E. Since the money is readily available, the after-tax cost of retained earnings is usually much lower than the after-tax cost of debt.
The debt of this company is currently 60% of the total assets the remainding capital structure is financed with common equity with a cost of 3%. The cost of the debt was $800,000 the entire $10,000,000 of the firm's liabilities. Please calculate the ..
You have a $22,500 line of credit which charges an annual percentage rate of prime rate plus 5%. Your starting balance on April 1 was $6,750. On April 5, you made a payment of $2,500. On April 14, you borrowed $5,100, and on April 17, you borrowed $3..
Assuming IBM’s historical “LT (Long-term Debt/Equity) is 100 percent, how does it currently stand? Generally speaking, is that good or bad? Assuming its historical return on assets is 10 percent, how does it currently stand? Generally speaking, is th..
Eads Industrial Systems Company (EISC) is trying to decide between two different conveyor belt systems. System A costs $427,000, has a 6-year life, and requires $115,000 in pretax annual operating costs.
Consider two investments that you can make. You can either buy a share of stock in a company that will pay a dividend of $ 46 every year into the foreseeable future, or a buy a special type of bond that will start paying the same $ 46 in one year, ca..
Briefly describe bankruptcy law. If a firm were to default on its bonds, would the company be liquidated immediately? Would the bondholders be assured of receiving all of their promised payments?
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be wort..
As the economy moves through a business cycle, there is a pronounced shift in the size of default risk premiums. Briefly explain the default risk premium changes as we move through the business cycle. Why does it change?
You estimate that you will owe $48,000 in student loans by the time you graduate. The interest rate on your student loan is 4.6%. If you want to have this debt paid in full within 8 years, how much must you pay each month?
“The economic, social, and environmental costs of globalization have altered business practices.”
The bonds have an 9.3% coupon rate, payable semi annually, and a par value of $1,000. They mature exactly 10-years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?
Given 2-yr treas bond yield, find price: Suppose a $100,000 T bond has two years to maturity, a 5.52 % annual coupon rate, semiannual coupons, and a yield of 5.62%. Its price is $.
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