Shareholders are required to compensated for financial risk

Assignment Help Financial Management
Reference no: EM13731369

Company has an Un levered beta of 1.1. Financed with 50% debt and levered beta of 1.6. If the risk free rate is 5.5% and the market risk premium is 5% how much is the additional premium that shareholders are required to be compensated for financial risk?

Reference no: EM13731369

Questions Cloud

Differences between minimization and maximization problems : What are the similarities and differences between minimization and maximization problems using the graphical solution approaches of LP?
Set up valuation formula with all the relevant cash flows : Storico Co. just paid a dividend of $3.00 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent divid..
What is the probability that the colors match : Abe holds 1 green and 1 red jelly bean in his hand. Bea holds 1 green, 1 yellow, and 2 red jelly beans in her hand. Each randomly picks a jelly bean to show the other. What is the probability that the colors match?
If market interest rates remain unchanged : You own a 5-year bond with a face value of $1,000 and a coupon rate of 5 percent with annual payments. The bond is currently worth $810.46. If market interest rates remain unchanged, what will be the value of the bond next year when there are 4 years..
Shareholders are required to compensated for financial risk : Company has an Un levered beta of 1.1. Financed with 50% debt and levered beta of 1.6. If the risk free rate is 5.5% and the market risk premium is 5% how much is the additional premium that shareholders are required to be compensated for financial r..
What is the break-even quantity : Company has fixed operating cost of $300,000 and variable cost of $50 per unit. If it sells the product for $75 per unit what is the break-even Quantity?
After-tax cost of debt-currently outstanding bonds : The Heuser Company's currently outstanding bonds have a 9% coupon and a 13% yield to maturity. Heuser believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is Heuser's after-tax..
Cost of common equity with and without flotation : The Evanec Company's next expected dividend, D1, is $3.15; its growth rate is 4%; and its common stock now sells for $30. New stock (external equity) can be sold to net $28.50 per share. What is Evanec's cost of retained earnings, rs?
Perpetual preferred stock : Tunney Industries can issue perpetual preferred stock at a price of $55.00 a share. The stock would pay a constant annual dividend of $6.00 a share. What is the company's cost of preferred stock, rp?

Reviews

Write a Review

Financial Management Questions & Answers

  Retirement account pays

Your retirement account pays 8% interest compounded monthly. You plan on having $1 million in the bank on the day you retire. You playing to work for 40 years and then retire. How much were you had to take out of your pay check at the beginning of ea..

  Evaluate the principal

What is the principal for first year

  What is the equivalent annual annuity for each machine

The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $11 million but realizes after-tax inflows of $5 million per year for 4 yea..

  From the books of agarwal from books of aggarwal bors

from books of aggarwal bors following information has been extracted rs. sales 240000 variable costs 144000 fixed costs

  In order to develop effective strategies it is critical to

external environmental scannbspin order to develop effective strategies it is critical to understand the marketplace

  What is the effective cost of borrowing in the case

Your firm has an average collection period of 20 days. Current practice is to factor all receivables immediately at a 1.00 percent discount.

  The dauten toy corporation currently uses an injection

the dauten toy corporation currently uses an injection molding machine that was purchased 2 years ago.nbsp this machine

  What interest rate was paid on the construction bonds

The Golden Gate Bridge in San Francisco was financed with construction bonds sold for $34 million in 1931. These were 40-year bonds, and the $34 million principal plus almost $38 million in interest were repaid in total in 1971. Assume the constructi..

  An investment offers a total return

An investment offers a total return of 14 percent over the coming year. Bill Bernanke thinks the total real return on this investment will be only 8.6 percent.

  What is the present value of the car payments

The car dealership offers you no money down on a car. You may pay for the car in 4 equal annual end of the year payments of 10,352 each, with the first payment to be made one year from today. If the discount rate is 9.99 percent compounded annually w..

  Assume debt tax shields have a net value

Digital Organics (DO) has the opportunity to invest $0.98 million now (t = 0) and expects after-tax returns of $580,000 in t = 1 and $680,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 14% with all-equity f..

  What is the loans annual amount percentage rate

A couple planning to buy a home have found a $300,000 home available with the following mortgage loan options. (option a) the borrowers can obtain an 80 percent loan to value at a 3.5% interest rate with monthly payments amortized over 30 years and c..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd