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To estimate the cost of equity for Apple, go to finance.yahoo.com and enter the ticker symbol ‘AAPL’. Follow the various links to find answers to the following questions: What is the most recent stock price listed for Apple? What is the market value of equity or market capitalization? How many shares of stock does Apple have outstanding? What is the beta for Apple? Now go back to finance.yahoo.com and follow the ‘Bonds’ link (on the left menu click on the ‘Market Data’ link and then click on the ‘Bonds’ link). What is the yield on 3-month Treasury Bills? What is the yield on the 10-year Treasury Bond? Using the CAPM, calculate the cost of equity for Apple using a 7 percent market risk premium and using the yield 3-month Treasury Bills and the yield on the 10-year Treasury Bonds as proxies for the risk-free rate. Does it matter if you use the yield on 3-month Treasury Bills or the yield on 10-year Treasury Bonds in this case?
The relationship between a bond's yield to maturity and coupon interest rate can be used to predict its pricing level. For each of the bonds listed, state whether the bond will be at a premium to par, at par, or at a discount to par:
The Financial Advisor is a weekly column in the local newspaper. Assume you must answer the following question. “I recently retired at age 65, and I have a tax-free retirement annuity coming due soon. How does increasing the interest rate change you..
A firm plans to purchase a $50,000 asset that will be depreciated straight-line over a 5-year life to a zero salvage value. What is the present value of the resulting benefit from depreciation (the depreciation “tax shield”) if the tax rate is 35% an..
The club charges a membership fee of $35 per year. The membership entitles George join 6 hikes a year, which he utilizes to the maximum. During a hike, he usually buys some hiking equipment and a sports drink from the club. On average, he spends $60 ..
A bond currently sells for $1,120, which gives it a yield to maturity of 5%. Suppose that if the yield increases by 25 basis points, the price of the bond falls to $1,070. What is the duration of this bond?
The total book value of WTC’s equity is $10 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 15%. The firm’s bonds have a face value of $5 million and sell at a price of 110% of face val..
Brandies Candies has total assets of $1,200, total equity of $900, an ROA of 15%, and a dividend payout ratio of 40%. What is the internal growth rate of Brandies Candies?
Pasqually Mineral Water, Inc., will pay a quarterly dividend per share of $1.20 at the end of each of the next 12 quarters. Thereafter, the dividend will grow at a quarterly rate of 1.8 percent, forever. The appropriate rate of return on the stock is..
The IRS has a formalized and generally well- defined process of review for taxpayer compliance or "administrative procedures." Discuss how you will prepare the client for the audit. How will you provide guidance through the audit process from the beg..
The value of the dividend that investors expect corporation B to pay one year from today is $10. Given that corporations A and B have exactly the same risk and both have a current stock price of $100. We can assume that the before-dividend stock pric..
Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $204,000, has a four-year life, and requires $66,000 in pretax annual operating costs. Calculate the EAC for both conveyor belt sy..
A project has sales of $258,000, cost of $192,000, depreciation of $31,000, interest expense of $2,800, and a tax rate of 35 percent. What is the value of the depreciation tax shield?
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