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As a result of stockholder pressure, RJR Nabisco is considering spinning off its food division. You have been asked to estimate the beta for the division. You decide to so by obtaining the beta of comparable publicly traded firms (often called pure plays). The average (leveraged) beta of comparable firms is 0.9, and the average market value debt/equity ratio of these firms is 0.60. The division is expected to have a debt/equity ratio of 1.20. The marginal tax rate is 36% for all the firms.
What is the beta for the food division?
The T-bond rate is 3%, and assume a market risk premium of 5% what is the cost of equity of the division?
If you invest $820 today at an interest rate of 8.81 percent compounded daily, how much money will you have in your account in six years? Round the answer to two decimal places.
Signature Sweets, Inc. has 10 percent semi annual bonds outstanding with 20 years to maturity. The latest quote on these bonds is 120.00 percent of the face value. What is the yield to maturity?
The Bowman Corporation has a bond obligation of $26 million outstanding, which it is considering refunding. Though the bonds were initially issued at 11 percent, the interest rates on similar issues have declined to 9.9 percent. Calculate the present..
the book is financial management for public health and not-for-profit organization third edition by steven a.
A major lottery advertises that it pays the winner $10 million. However this prize money is paid at the rate of $500,000 each year (with the first payment being immediate) for a total of 20 payments. What is the present value of this prize at 10% int..
The capital budget forecast for the Santo Company is $800,000. The CFO wants to maintain a target capital structure of 40% debt and 60% equity, and it also wants to pay dividends of $500,000. If the company follows the residual dividend policy, how m..
Suppose that the R&B Beverage Company has a soft drink product that shows a constant annual demand rate of 3600 cases. A case of the soft drink costs R&B $3. Ordering costs are $20 per order and holding costs are 25% of the value of the inventory. R&..
Schweser Satellites Inc. produces satellite earth stations that sell for $100,000 each. The firm’s fixed costs, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm’s assets (all equity financed) ..
A pure discount (or zero-coupon) government bond is issued today that promises to pay $10,000 in 5 years. If the current interest rate on similar bonds is 6%, what is the price of the bond? Recall that the compounding interval for bonds is 6 months.
At NYIT in 1993 a 100ton electric A/C system (electric driven compressor) with a 100ton natural gas absorption system. Electric then was $.12/kwh and the natural gas unit was expected to half the energy cost.
Explain this organisations benchmarking efforts (or lack thereof). If benchmarking is employed, identify how the currently used benchmarks align with or address international standards.
A project is expected to generate the following sequence of cash flows over the first five years of its life: Year 0 1 2 3 4 5 CF ($m) -65.00 8.00 8.00 9.00 9.50 10.00 Assume the appropriate discount rate for the project is 10%. Estimates the project..
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