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Northman’s common equity, debt, and preferred equity are worth $70,000, $10,000 and $20,000 respectively with a total value is $100,000. The company’s common stock is currently listed at $54 per share; new preferred stock sells for $70 per share with a flotation cost of 10% and pays a dividend of $3.5 per share. Last year the company paid dividends of $2 per share on common stock, which is expected to grow at a constant rate of 5%. The local bank is willing to finance the project at 12% annual interest. Assuming the company’s tax rate is 35%, do the following computations:
What is the cost of new preferred equity? **Use equation:
Rps = Preferred dividend / ((Pps x (1-F))
Columbia Corporation expects earnings of $8,000,000 in the current year on 6,000,000 shares of common stock. The company is considering the effects on reported earnings of issuing an additional 2,000,000 shares of common stock. What will be the initi..
While Mary Corens was a student at the University of Tennessee, she borrowed $12,000 in student loans at an annual interest rate of 8.80%. If Mary repays $1,500 per year, how long (rounded up to the nearest year) will it take her to repay the loan?
You want to buy a car, and a local bank will lend you $30,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 7% with interest paid monthly. What will be the monthly loan payment?
Efficiency cost is a term that involves
Fairfax Paint operates stores in Virginia. The firm is evaluating the Vienna project, which would involve opening a new store in Vienna. During year 1, Fairfax Paint would have total revenue of 356,000 dollars and total costs of 245,000 dollars if it..
Earth-moving equipment having a first cost of $82,000 is expected to have a life of 18 years. The salvage value at the time is expected to be $15,000. Calculate the depreciation charge and book value for years 2, 7, 12, and 18 using: The straight-lin..
Four probable states of the economy may prevail next year. Below are the returns on the stocks of ABC and XYZ companies under each of the probable states and the probabilities for each state. Moderate Growth 20.00% -8.00% 22.00% Given the probabiliti..
The market rate of return is 10.8 percent and the risk-free rate is 4.45 percent. Galaxy Co. has 17 percent more systematic risk than the overall market and has a dividend growth rate of 5.5 percent. The firm's stock is currently selling for $39 a sh..
The majority of an established firm's capital is generated: When sales are made without the accompaniment of a formal debt contract, the sales are said to be on:
Harley Davidson purchases components from three suppliers. Components purchased from Supplier A are priced at $ 5 each and used at the rate of 240,000 units per year. Components purchased from Supplier B are priced at $ 4 each and are used at the rat..
What inherent characteristic of corporations creates the need for a system of checks on manager behavior and what are some examples of agency problems - what are the advantages and disadvantages of the corporate organizational structure?
Yield to Maturity You have just purchased an outstanding 15-year bond with a par value of $1,000 for $1,145.68. It's annual coupon payment is $75. What is the bond's yield to maturity?
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