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Why is it important to separate market risk from unique asset risk? Can market risk be segmented and measured differently than just looking at index benchmarks?
Universal Laser just paid a dividend of $3.60 on its stock. The growth rate in dividends is expected to be a constant 7 percent per year indefinitely. Investors require a return of 15 percent for the first three years, a return of 13 percent for the ..
Erna Corp. has 8 million shares of common stock outstanding. The current share price is $73, and the book value per share is $7. Erna Corp. also has two bond issues outstanding. Assume that the overall cost of debt is the weighted average of that imp..
Viton's 1981 study of urban transit costs found that urban transit firms operating in small cities (where fewer than one million vehicle-miles are produced annually) operate under increasing returns to scale, Assuming that fares are set at marginal c..
Barry's employer will match this amount. If Barry can earn an 8% return on his investment, how much will he have at retirement?
If an individual employee, age 25, earning $45,000 per year has an opportunity to participate in an employer sponsored 401(k) tax sheltered retirement account with the employer matching the first $1,200 of annual contributions made by the employee,
Johnson Tire Distributors has an unlevered cost of capital of 12 percent, a tax rate of 33 percent, and expected earnings before interest and taxes of $1,400. The company has $2,500 in bonds outstanding that have a 6 percent coupon and pay interest a..
Buchanan Corp. is refunding $10 million worth of 10% debt. The new bonds will be issued for 8%. The corporation's tax rate is 35%. The call premium is 9%. What is the net cost of the call premium? A bond with a coupon rate of 6.5%, maturing in 10 yea..
David Ortiz Motors has a target capital structure of 35% debt and 65% equity. The yield to maturity on the company's outstanding bonds is 12%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 11.23%.
If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and..
An auto plant that costs $200 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $260 million if the line is successful but only $120 million if it is unsuccessful. You believe that the probabili..
Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 40%. What is the firm's ..
A proposed project requires an initial cash outlay of $49,000 for equipment and an additional cash outlay of $18,700 in Year 1 to cover operating costs. During Years 2 through 4, the project will generate cash inflows of $42,500 a year. What is the n..
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