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As a consultant to GBH skiwear, you have been ask to compute the appropriate discount rate to use to evaluate the purchase of a new warehouse facility. You have determined the market value of the firm's capital structure as follows: Source of Caital Market Value Bonds $470,000 Preferred Stock $140,000 Common Stock $410,000 To finance the pruchase, GBH will sell 20 year bonds, with a $1000 par value paying 7.% per year (paid semi annually), at the market price of $944. Preferred stock paying a $2.54 dividend can be sold for $34.45. Common stock for GBH is currently selling for $50.92 per share. The firm paid a $4.02 dividend last year and expects dividends to continue growing at a rate of 4.1%per year into the indefinite future. The firm's marginal tax rate is 34%. What discount rate should you use to evaluate the warehouse project?
The weight of debt in the firm’s capital structure is ___%
Camila plans to go for vacation to Australia in 7 years from now. She estimates that she will need $15,668 for the trip. How much does she need to place in a saving account today that earns 4.83 percent per year (compounded quarterly) to accumulate t..
Tidewater Home Health Care, Inc. has a bond with eight years maturity, a coupon rate of 10% with interest paid annually, and a par value of $1000. The current market price of bond is $1251.22. What is the bond’s yield to maturity? What is its current..
Harry plans to start saving to provide for his retirement. Beginning one month from now, he will begin depositing a fixed amount each month into a retirement savings account that will earn 8.4% APR, compounded monthly. How much must Harry deposit int..
Suppose that you are the sole owner of an all-equity firm, the assets of which are worth $500,000. The ROA is 15% per year paid as a dividend to you. What will your return on equity be in the year after you go into debt?
Why is any NPV for a project that is greater than zero good? What is the main benefit of using a weighted scoring model? Identify and discuss what the first step of project portfolio management is and what value it brings to managing projects as a po..
An investor experienced returns of 8%, 6%, 4%, 10%, and -2% in five consecutive years. What was the investor's geometric average return over the five year period?
East Coast Television is considering a project with an initial outlay of $X (you will have to determine this amount). It is expected that the project will produce a positive cash flow of $53,000 a year at the end of each year for the next 14 years. T..
You have just arranged for a $1,580,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 5.8 percent, and it calls for monthly payments over the next 20 years. However, the loan has an eight-year balloon payment, ..
One year ago Clark Company issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065, and it now sells for $1,270. What is the expected capital gains (or loss) yield for..
Suppose investors can earn a return of 2% per 6 months on a Treasury note with 6 months remaining until maturity. What price would you expect a 6-month maturity Treasury bill to sell for?
Heavy Snow Corporation just paid a dividend of $2.90 per share, and the firm is expected to experience constant growth of 4.20% over the foreseeable future. The common stock is currently selling for $52 per share. What is Heavy Rain's cost of retaine..
Suppose that today’s date is April 15. A bond with a 10% coupon paid semiannually every January 15 and July 15 is listed in The Wall Street Journal as selling at an ask price of 101:04.If you buy the bond from a dealer today, what price will you pay ..
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