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Avicorp has $14.2 million debt issue outstanding, with a 6.1% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 93% of par value.
a. What is Avicorp’s pre-tax cost of debt? Note: Compute the effective annual return
b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt?
Echo Company currently has 3 million shares of common stock outstanding with a price of $25.00 per share. The firm is expected to pay a $2.50 common dividend one year from today, and that dividend is expected to increase by 6 percent per year forever..
A firm has a return on equity of 12.4 percent according to the dividend growth model and a return of 18.7 percent according to the capital asset pricing model. The market rate of return is 13.5 percent. What rate should the firm use as the cost of eq..
A company currently pays a dividend of $1.5 per share (D0 = $1.5). It is estimated that the company's dividend will grow at a rate of 22% per year for the next 2 years, then at a constant rate of 7% thereafter. What is your estimate of the stock's cu..
The 2014 balance sheet of Sugarpova's Tennis Shop, Inc., showed long-term debt of $5.5 million, and the 2015 balance sheet showed long-term debt of $5.7 million. The 2015 income statement showed an interest expense of $180,000. Suppose you also know ..
On Jan 19th, the three-month forward rate for the Singaporean dollar (SGD) to New Zealand dollar (NZD) was SGD1.0260/NZD. At the same time, the spot rate was SGD 1.0180/NZD. A deranged scientist located in New Jersey had a hunch that the spot rate wi..
The Toy Chest pays an annual dividend of $4.80 per share and sells for $93.20 a share based on a market rate of return of 15 percent. What is the capital gains yield?
Write a one to two page essay wherein you choose a nation state in which you would like to do business. In your essay describe the problems you might encounter in entering the foreign market and in running your business there.
The common stock and debt of Northern Sludge are valued at $56 million and $44 million, respectively. Investors currently require a return of 16.8% on the common stock and 6.9% on the debt. If Northern Sludge issues an additional $20 million of commo..
What is the present value of a $9,800 ordinary perpetuity is the applicable discount rate is 7%? Calculate the present value of a delayed perpetuity of $890 that starts with the first cash flow at the end of year 7 if the applicable discount rate is ..
Loud Music Inc recently completed a 3-for-1 stock split. Prior to the split, its stock sold for $120 per share. What was the stock price following the split?
You buy a stock for $56. After a month the price rises to $64 but falls back to $56 at the end of the second month. What was the average percentage return and what was the true annualized return?
The textbook Investment Analysis and Portfolio Management (10th edition), by Frank Reilly. enumerates five sources of risk. If you are investing globally, which of these five sources can be both a risk and a potential benefit? Briefly explain your re..
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