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The Munson Company and the Massey Company are two firms whose business risk is the same but that have different dividend policies. Munson pays no dividend, whereas Massey has an expected dividend yield of 6 percent. Suppose the capital gains tax rate is zero, whereas the income tax rate is 40 percent. Munson has an expected earnings growth rate of 10 percent annually, and its stock price is expected to grow at this same rate.
Required:
If the aftertax expected returns on the two stocks are equal (because they are in the same risk class), what is the pretax required return on Massey's's stock?
The yield on a five-year U.S. Treasury note is 1.95 percent, and the three-month U.S. Treasury bill rate is 0.11 percent. Evaluate what is the estimated loan rate for the five-year bank loan?
A farmer anticipates harvesting 50,000 bushels of wheat in September. How much money would the farmer earn from hedging by selling eight agreements of September.
A Corporation is evaluating two systems. The Corporation revenue stream will not be affected by the choice of the systems, the projects are being evaluated through finding the PV of each set of costs.
The Zocco Corporation has an inventory conversion period of 60 days, an average collection period of 38 days, and a payables deferral period of 30 days. Assume that cost of goods sold is 75% of sales.
Calculate the firm's current cost of equity. Estimate the firm's cost of equity after it increases its leverage to 75% of equity.
Consider a service provider that is in the delivery business, such as UPS or FedEx. How can the principles of MRP be useful to such a company?
1. Does this company carry long-term debt on their balance sheet? 2. What is the company's debt-to-equity ratio, and debt ratio?
Sanders' Prime Time Company has annual credit sales of $2,592,000 and accounts receivable of $604,800. Compute the average collection period. (Use 360 days in a year.)
The annual maintenance costs are $810 for model A and $740 for model B. Assume that the opportunity cost of capital is 9 percent. Calculate EAC for both the models and choose which one should you buy?
What to the nearest cent, is the lower bound for the price of a two-year European call option on a stock when the stock price
What would be the value of this bond if interest rates fall to 5% the day after it is purchased? If interest rates fell to 5% after one year, what would the bond be worth at that point?
Critics of the field of international finance charge that the field is simply "corporate finance with an exchange rate."
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