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On the London Metals Exchange the price for copper to be delivered in one year is $3,530 a ton. (Note: Payment is made when the copper is delivered.) The risk-free interest rate is 0.58% and the expected market return is 8%. a. Suppose that you expect to produce and sell 100,000 tons of copper next year. Assume that the sale occurs at the end of the year. What is the PV of this output? b-1. Assume copper has a beta of 1.28. What is the expected price of copper at the end of the year? b-2. Assume copper has a beta of 1.28. What is the certainty-equivalent price?
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. What are the net operating cash flows in Years 1, 2, and 3? What is t..
Ryan’s parents have been saving $2,000 every year for the last five years. They plan on continuing to invest the same amount annually for the next five years. Ryan is interested in attending a state university which is expected to cost $17,000 per ye..
In addition to the tax shield offered by governments around the world, debt has a lower required rate of return than equity - explain why this is so? Given the inherent tax shield advantages why might we still come across 100% Equity financed firms?
Ford Motor Company, Inc. Capital structure. Review Ford’s consolidated financial statements. Calculate the company’s debt/equity ratio and the earnings per share & return on investment and the weighted average cost of capital. What is the meaning of ..
Travel America Coaches currently sells 15,000 motor homes per year at $94,000 each, and 1,500 luxury motor coaches per year at $159,000 each. The company wants to introduce a low-range camper to fill out its product line; it hopes to sell 3,000 of th..
Explain, in your own words, when and how the composition of capital (the mix of debt and equity) does not affect the value of the firm and Discuss this statement: leverage gives the illusion of higher returns.
Suppose a stock had an initial price of $80 per share, paid a dividend of $.60 per share during the year, and had an ending share price of $72. Compute the percentage total return. What were the dividend yield and the capital gains yield?
Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a..
Firms have long-run target dividend payout ratios. Dividend changes follow shifts in long-term, sustainable earnings. Managers are reluctant to make dividend changes that might have to be reversed.
Describe how the average accounting return is usually calculated and describe the information this measure provides about a sequence of cash flows. What is the Average Accounting Return criterion decision rule? What problems associated with using the..
A forklift can be purchased for $30,000. The market value of the forklift decreases by 20% of the previous year’s value for 2 years, and then by 15% in years 3 through 10. Maintenance is $400 in years 1 and 2, and then jumps to $750 in year 3. After ..
How can you use the cost of common equity found above under (a) to compute the cost of retained earnings? Assuming the company is privately held, would you expect them to rely more heavily on equity or retained earnings? Explain your rationale.
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