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Erna Corp. has 7 million shares of common stock outstanding. The current share price is $86, and the book value per share is $5. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $70 million, has a coupon rate of 9 percent, and sells for 96 percent of par. The second issue has a face value of $45 million, has a coupon rate of 10 percent, and sells for 104 percent of par. The first issue matures in 24 years, the second in 6 years. Suppose the most recent dividend was $5.80 and the dividend growth rate is 7 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 34 percent. What is the company’s WACC? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
1size-up hcm using historical ratio analysis and a discussion of its business risk and financial risk.the q1 tab
What are the required rates of returns on both stocks using the CAPM model? What are the expected rates of return of both stocks using the dividend growth model. Which stock would you recommend to purchase or sell? Why?
Pacific Fixtures lists the following accounts as part of its balance sheet. Compute the return on stockholders’ equity if the company has sales of $20 million and the following net profit margin:
Xinhua Manufacturing Company has been generating stable revenues but sees no growth in it for the foreseeable future. The company's last dividend was $3.25, and it is unlikely to change the amount paid out. If the required rate of return is 12 percen..
In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following: Pay 1.84 percent per quarter on any funds actually borrowed. Maintain a 2 percent compensating balance on any funds actually borrowed.
Explain how and why the secondary capital markets play an important role in our economy. how do secondary markets assist the primary market?
Johnson Jets is considering two mutually exclusive projects. Project A has an up-front cost of $122,000 (CF0 = -122,000), and produces positive after-tax cash inflows of $30,000 a year at the end of each of the next six years. Compute the equivalent ..
Your company will generate $60,000 in annual revenue each year for the next seven years from a new information database. If the appropriate interest rate is 8.50 percent, what is the present value of the savings?
New shares can be sold to net the company $56 per share. Determine the marginal cost of capital schedule and the break points in the schedule for Penguin.
Why is NPV considered a superior method of evaluating the cash flows from a project? Suppose the NPV for a project’s cash flows is computed to be $3,000. What does this number represent with respect to the firm’s shareholders? Describe how the IRR is..
You owe $10,000 to a credit card company. Your credit card debt is 127 days overdue after the grace period. The interest rate is 19%. How much do you need to pay off this debt?
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..
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