Suppose the total market value of a company is 6 million

Assignment Help Accounting Basics
Reference no: EM13577434

Suppose the total market value of a company is $6 million, and the total market value of its debt is $4 million (the company has no preferred stock). The treasurer estimates that the beta of the stock is currently 1.2 and that the expected risk premium on the market is 10 percent (i.e., RPm = (rmkt %u2013 rrf ) = 10%). The Treasury note rate (rrf) is 4%.

A. What is the required rate of return (rs) on the company%u2019s stock?

B. Estimate the weighted average cost of capital (WACC) assuming a tax rate of 40%.

C. Suppose the company wants to diversify into the manufacture of rose-colored glasses

(a completely new, and more risky, business venture). The beta of optical manufacturers with a similar capital structure is 1.4. What is the required rate of return on the firm%u2019s new venture? (You should assume that this risky project will not require the firm to issue.

Reference no: EM13577434

Questions Cloud

Calculate the straight line depreciation at the end of year : sizemore industries purchased a building for 125000 cash and the land that it was located on for 85000. the company
Rolling a pair of fair die 10 times and recording the : rolling a pair of fair die 10 times and recording the number of times we get a 7. what is the probability of rolling
Lizzys lemonade issues 7 15-year bonds with a face value : lizzys lemonade issues 7 15-year bonds with a face value amount of 90000 for 82219 priced to yield 8. interest is paid
A formulate and solve an linear programming model for this : julias food boothjulia robertson is a senior at tech and shes investigating different ways to finance her final year at
Suppose the total market value of a company is 6 million : suppose the total market value of a company is 6 million and the total market value of its debt is 4 million the
Colasuonno corporation has two divisions the west division : colasuonno corporation has two divisions the west division and the east division. the corporations net operating income
Estimate the cost of equity based on the three most : assume you have researched the following financial data1 rd yield on the firmu2019s bonds 7.00 and the risk premium
Suppose that contamination particle size in micrometers can : suppose that contamination particle size in micrometers can be modeled as fx 2x-3 for 1 gt x and fx 0for x lt 1.a
Cmpare and contrast internal and external validity : quantitative research questiondownload gpower and play around with it. see how changes in assumptions and parameters

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  Required reporting for defined contribution

Write a 700- to 1,050-word executive memo that explains the required reporting for defined contribution, defined benefit, and other postretirement plans. Also include an explanation of what must happen for the two segments to be eliminated

  What are the advantages of loan agreements

What are the advantages of loan agreements that contain covenants tied to accounting numbers? Are there any disadvantages? Please explain.

  Cash investments made by stockholders in exchange for

cash investments made by stockholders in exchange for capital stock in a business are reported on the cash flows in

  How much can harry contribute to his roth ira

Harriet and Harry Combs (both 37 years old) are married and both want to contribute to a Roth IRA. In 2012, their AGI is $50,000. Harriet earned $46,000 and Harry earned $4,000. (Leave no cells blank - be certain to enter "0" wherever required. Om..

  T accounts of gonzales company

Post the transactions to T accounts and complete the following information.

  Indicate the effectsof the following two items on the

wiater company operates a small manufacturing facility. on jan. 12010 an asset account for the company showed the

  Prepare a segmented income statement

Prepare a segmented income statement in the contribution format for the company. Omit percentages, show only dollar amounts.

  General fund payrolls for the year totaled 3822600 of that

general fund payrolls for the year totaled 3822600. of that amount 472040 was withheld for employees federal income

  Shares of common stock of long corporation

Cayuga Meadows purchased 42,000 shares of common stock of Long Corporation as a long-term investment for $1,000,000. During the year, Long Corporation reported net income of $500,000 and paid dividends of $200,000.Instructions:

  You are using the fair value option for a qualifying asset

instructions you have been asked to comment on the accounting treatment for various independent transactions by citing

  Academic approach to stock price

The stock has a beta equal to 0.75. The risk-free rate is 5.0%, and the market risk premium is 5.5%. The stock's dividend is expected to grow at some constant rate g. The stock currently sells for $50 a share. Assume that the market is in equilibr..

  For the following investments determine whether they

for the following investments identify whether they are1. trading securities2. available-for-sale securities3.

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