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Simms Enterprises is attempting to evaluate the possibility of investing $85,000 in a machine having a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown below. Simms has a capital structure containing 40% debt, 20% preferred stock, and 40% common stock. The firm’s outstanding bonds have an $80 annual coupon, a par-value of $1,000, 10 years left to maturity, and a current price of $1,250. The firm’s annual preferred stock dividend is $4.00 and their preferred shares are currently selling for $20. The firm’s common stock has a beta of 1.3. The risk-free rate is 3% and the required return on the market is 9%. The firm faces a tax rate of 40%.
CF1 $18,000 CF2 $22,500 CF3 $27,000 CF4 $31,500 CF5 $36,000
a. What is the firm’s wacc? b. What is the project’s payback? c. What is the project’s discounted payback? d. What is the projects net present value? e. What is the internal rate of return on this investment? f. What is the project’s modified internal rate of return? g. Should you accept this project? Why?
Assume that a department store, specializing in the sale of opuses solely depicting Domus Italica, has 6years remaining on its lease in a mall. Rent is $2,500 per month, 72payments remain, and the next payment is due in a month. The mall’s owners, An..
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The older bonds have a face value of $100,000 each and pay 18% in semi-annual instalments. They have an early call provision for a 5% premium over face value. The bonds were sold 8 years ago and have a 12-year term.
At time =0 an engineer deposited $10000 into an account that pays interest at 8% per year,, compounded quarterly. If she withdrew $1000 in months 2, 11, and 23, what was the total value of the account at the end of 2 years? Assume NO inter period com..
Measuring and Monitoring Strategy
Equity capital can be raised through_____.
How can you determine a company’s method of depreciation used when looking at the line item (Fixed assets, net) on the balance sheet? The financial notes do not give much information.
Required rate of return Assume that the risk-free rate is 4.5% and the expected return on the market is 12%. What is the required rate of return on a stock with a beta of 0.8?
What mutual fund would you recommend for a 65 year old retired school teacher who is extremely conservative in her investing? She doesn’t want to lose one dollar. She has retirement money to live on but she is concerned about inflation and taxes. Wha..
Watkins Inc Income Statement For the Year ended December 31, 2010 Sales (@ $50) 250,000 COGS 120,000 Gross Margin 130,000 Less selling & admin Variable selling 75,000 Fixed selling 10,000 Fixed admin exp 15,000 100,000 Net Income $30,000 Watkins manu..
The Up and Coming Corporation's common stock has a beta of 1.5. If the risk-free rate is 4 percent and the expected return on the market is 10 percent, what is the company's cost of equity capital?
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