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Walmart Corporation has a target capital structure consistingof 20 percent debt, 20 percent preferred stock, and 60 percentcommon equity. Assume the firm has insufficient retained earningsto fund the equity portion of its capital budget. Its bonds have a12 percent coupon, paid semiannually, a current maturity of 20years, and sell for $1,000. The firm could see, at par, $100preferred stock that pays a 12 percent annual dividend, butflotation costs of 5 percent would be incurred. Rollins' beta is1.2, the risk free is 10 percent, and the market risk premium is 5percent. Rollins is a constant growth firm that just paid adividend of $2.00, sells for $27.00 per share, and has a growthrate of 8 percent. The firm's policy is to use a risk premium of 4percentage points when using the bond-yield-plus-risk-premiummethod to find ks. Flotation costs on new common stock totals 10percent, and the firm's marginal tax rate is 40 percent.
1. What is Rollins' WACC?
2. What is Rollins' cost of preferred stock?
Computation of APR quote of bank account based on semi-annual and monthly compounding
The project would cost the firm $145,000. If the firm's cost of capital is 11%, find NPV, IRR and MIRR for the project. Do you accept this project? Why?
what is the expected return on the stock if you buy today and sell next year?
A sales force manager needs to have information in order to decide whether to create a custom motivation program or purchase one offered by a consulting firm. What are the dilemmas the manager faces in selecting either of these alternatives?
You deposit 140 each month into a savings account that pays 8.5% compounded monthly. How much interest will you have earned after 10 years?
They have agreed with their investment banker to sell 3.3 million shares to investors at an offer price of $14 per share. The underwriting spread is 7 percent.
Last year, Hassan's Madhatter, Inc., had an ROA of 6.2 percent, a profit margin of 10.23 percent, and sales of $20 million.
The required rate of return on equity is 10%. How much would you be willing to pay for the stock today?
You borrow $75,000 for 30 years at 11% interest compounded annually. The value of the property is $100,000, PGI= $20,000, vacancy rates are 8%, and operating expenses are $81,000.
Discuss the purpose and give examples of specific fraud detection procedures in acquisition and expenditure cycle.
Cost of Capital (WACC). Suppose your company has decided to use a divisional WACC approach to analyze projects. The firm currently has 2 divisions, A and B, with betas for each division of 0.5 and 1.5, respectively.
The company estimates is after-tax cost of debt to be 7%, its cost of preferred stock to be 9%, the cost of retained earnings to be 14%, and the cost of new common stock to be 17%. What is the weighted average cost of capital for this project.
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