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COST OF COMMON EQUITY Percy Motors has a target capital structure of 40% debt and 60% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 9%, and its tax rate is 40%. Percy's CFO estimates that the company's WACC is 8.40%. What is Percy's cost of common equity? Express as a percentage rounded to TWO decimal places, example: 0.05155 = 5.16%.
Suppose the interest rate on a 2-year treasury security is 4.75% and the interest rate on a 5-year treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the 3-year treasury rate two years ..
The CEO of the insurance company you work for sends back the firm’s proposed budget which you had drafted, asking you to explain how this budget supports the firm’s strategies and goals. Discuss how you might demonstrate that your proposed budget is ..
The management of M&E Ltd has just been informed by their research department that recent breakthroughs have led to the development of a new product codenamed the Tenby. The management has decided to call a meeting to discuss whether to proceed wi..
You just acquired a house and based on the mortgage term you will pay $13,306.05 per month for 30 consecutive years. What is the present value of all the mortgage payments? Calculate the value of the House. Calculate the Value of the Down Payment. W..
You currently have a one-year-old loan outstanding on your car. You make monthly payments of $350. You have just made a payment. The loan has four years to go (i.e., it had an original term of five years.) Show the timeline from your perspective. How..
You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 10 percent, which is paid semiannually. Compute the price of the bonds based on semiannual ana..
Assume the US exports 1,000 computers at a price of $3,000 each and imports 150 UK autos at a price of 10,000 pounds each. Assume that the dollar/pound exchange rate is $2 per pound. Calculate in dollar terms, the US export receipts, import payments ..
A firm has sales of $3,600, costs of $2,800, interest paid of $100, and depreciation of $400. The tax rate is 34%. What is the value of the cash coverage ratio?
Suppose the funds to purchase or lease the plane will come from equity holders (for ex-ample, by reducing the amount of Western's current dividend). Western also has one-year debt outstanding, and there is a 10% (risk-neutral) probability that ove..
1. Discuss each part of the formula 2. how changes in exchange rates effect values.
Your company has been approached to bid on a contract to sell 3,600 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The tax rate..
Dome Metals has credit sales of $180,000 yearly with credit terms of net 60 days, which is also the average collection period. Assume the firm adopts new credit terms of 3/18, net 60 and all customers pay on the last day of the discount period. If Do..
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