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Patterns Corporation has a target capital structure of 35 percent debt and 65 percent common equity, with no preferred stock. Currently, before-tax yield to maturity of its bonds (i.e. before-tax cost of debt) is7 percent, and its marginal tax rate is 35%. The current stock price is Po=$25, the last dividend was 0.85, and it is expected to grow at a constant rate of 3 percent.
a) What is the company’s cost of common equity if it uses retained earnings?
b) What is its WACC? (the company does not use preferred stock as a source of borrowed funds)
Suppose that a firm wishes to create an endowment for a laboratory. It will earn an interest of 12% per year. Cash requirement are estimated to be $150,000 (to establish it), $40,000 per year indefinitely. Also $30,000 every fourth year and $50,000 e..
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Calculate the net operating cash flows in years 1, 2, and 3 and calculate the non-operating terminal year cash flow.
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You need to borrow $1,000 for the next year. Bank A can give you the loan at 9 percent. Bank B can give the loan at 7 percent, but charges a $50 loan origination fee. Bank C will give loan at 6 percent with a $25 loan origination fee. Determine the t..
If these are the only two investments in her portfolio, what is her portfolio's beta?
The internal rate of return and net present value methods:
Backwater Corp. has 9 percent coupon bonds making annual payments with a YTM of 8.3 percent. The current yield on these bonds is 8.65 percent. How many years do these bonds have left until they mature?
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