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1. Scherr Enterprises has a series of 8 percent coupon bonds outstanding with a $1,000 par value. The bonds mature in 10 years and currently sell for $946. If new bonds are issued, the issuance cost is expected to be $11 per bond. Scherr's marginal tax rate is 40 percent. What is the marginal after-tax cost of debt for Scherr? (Assume annual interest payments.)
2. Clarke Equipment currently pays a common stock dividend of $3.50 per share. The common stock price is $60. Analysts have forecast that earnings and divi- dends will grow at an average annual rate of 6.8 percent for the foreseeable future.
a. What is the marginal cost of retained earnings?
b. What is the marginal cost of new equity if the issuance costs per share are $3? ST3. Vargo, Inc., has a beta estimated by Value Line of 1.3. The current risk-free rate (short-term) is 7.5 percent and the market risk premium is 8.6 percent. What is the cost of equity capital for Vargo?
Kellogg Co. (K) recently earned a profit of $2.42 earnings per share and has a P/E ratio of 19.45. The dividend has been growing at an 8 percent rate over the past few years. what would be the stock price in four years if the P/E ratio remained uncha..
How is it possible for a cost that is traceable to a segment to become a common cost if the segment is divided into further segments?
Research the variables that impact the pricing of options. Focus your energy on comparing the attributes of the two widely accepted models used for option pricing: Black-Scholes and Binomial Models.
What does the acronym TBTF refer to in banking terminology? Provide an example of a TBTF firm indicating what makes it TBTF.
On the other hand, Nguyen and Tang (2009) find that- The 2008 short-sale ban has a ________ (positive or negative or no) impact on the stock prices of the banned stocks in the ban period.
Compute the present value of a $2,500 deposit in year 4 and another $10,000 deposit at the end of year 8 if interest rates are 15 percent.
Dick Tracy builds a two way wrist radio for $8,000. It costs Dick $1800 a year to operate the radio. Dick uses the wrist radio for 5 years before upgrading the electronics for $3000. What is the total cost of the watch radio for the 5 years? Dick has..
Kedia Inc. forecasts a negative free cash flow for the coming year, FCF1 = -$10 million, but it expects positive numbers thereafter, with FCF2 = $25 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted aver..
A factory costs $860,000. You reckon that it will produce an inflow after operating costs of $176,000 a year or 10 years. If the opportunity cost of capital is 12%, what is the net present value of the factory? What will the factory be worth after ni..
Remington’s has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earning..
Suppose you have a project that has a 0.9 chance of tripling your investment in a year and a 0.1 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment?
Operating income (EBIT) $600 million, Interest expense $0, Tax rate 35%, Debt $0, Cost of equity 7%, WACC 7%. The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends. Hobbit can borrow money at a pre-..
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