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Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $2.30 and it expects dividends to grow at a constant rate g = 5%. The firm's current common stock price, P0, is $22.10. If it needs to issue new common stock, the firm will encounter a 4.9% flotation cost, F. Assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%. What is the flotation cost adjustment that must be added to its cost of retained earnings? Round your answer to 2 decimal places. Do not round intermediate calculations.
Assume that the real risk-free rate is r* = 1% and the average expected inflation rate is 3% for each future year.
A gas company is evaluating new water processing technology to eliminate periodic lawsuits they face from environmental groups related to small wastewater spills. On average they face a S600.000 lawsuit (including all legal expenses) every five years..
Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 40%. What is the firm’s ..
Which of the following actions will have the result of increasing financial leverage in the firm? In each case, assume that all other activity in the firm does not change. a. A 2 for 1 stock split b. A new debt issue c. An increase in the firm’s reta..
An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,080,000 and will be sold for $1,280,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax s..
The drying rate in an industrial process is dependent on many factors and varies according to the following distribution. What is the average drying time for the 12 processes you simulated? Compute the mean drying time
Explain the following renewal provisions that may appear in individual health insurance policies:
A firm is considering a project that has an initial investment of $140,000 and is expected to produce cash inflows of $26,250 per year for 10 years. The firm’s cost of capital is 10.3%. What is the project’s NPV? Based on this, should the project be ..
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $430,000. The truck falls into the MACRS 7-year class, and it will be sold after 7 years for $68,000. Use of the truck will r..
Ethier Enterprise has an unlevered beta of 1.25. Ethier is financed with 45% debt and has a levered beta of 1.45. If the risk free rate is 5.5% and the market risk premium is 5%, how much is the additional premium that Ethier's shareholders require t..
Consider a six month American put option on 500 ounces of gold with a strike of $1300 per ounce. The spot price per ounce of gold is $1300 and the annual financing rate is 2% on a continuously compounded basis. Compute u, d, as well as p for the sta..
Cheeseburger and Taco Company purchases 18,029 boxes of cheese each year. What is the annual carrying costs of cheese inventory?
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