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Grader Construction Company has just hired you as a consultant to value the company for possible sale. Last year they had EBIT of $25 million. The firms tax rate is 35%, Depreciation expense was $5.00 million and expected to remain at 20% of EBIT for the foreseeable future. The firm in the past has and to make an investment of operating fixed assets of 10% of EBIT each year and a investment of 5% of EBIT in net operating working capital each year. These ratios are expected to remain constant for the foreseeable future. EBIT is expected to grow by 10% this coming year and by 10% each of the following 4 years. After that they are expected to grow at rate of 5.00% per year. The firm has a cash balance of $10 million and has bonds of $100 million par value outstanding with a coupon of 5.00% and a maturity of 10 years. The YTM on similar bonds is 4.35%. Assuming that the firm’s WACC is 8.25%, what is the value of the companies operations? If there are 2 million shares outstanding, what is the value of each share of the company?
Calculate the expected rate of return for each stock separately and calculate the expected rate of return for the portfolio.
What is the approximate yield to maturity for a $1000 par value bond selling for $925 that matures in 8 years and pays a 10 percent coupon that is paid semi annually?
You need to get gasoline for your car. You can drive ten miles (round trip) to a gas station on the outskirts of town and save 12 cents per gallon on the price of gasoline. If gasoline costs $3.4 per gallon and your car gets 31 miles per gallon for i..
A company enters into a $35 million notional principal interest rate swap. (pay fixed, receive floating at LIBOR) What is the value of the swap?
Suppose today a mutual fund contains 2,000 shares of JP Morgan Chase, currently trading at $46.75; 1,000 shares of Walmart, currently trading at $70.10; and 2,500 shares of Pfizer, currently trading at $27.50. Calculate the updated NAV of the fund if..
Nonproduction expenses such as marketing, research and development, and general administrative costs can play an important role in a company's ability to meet long-term goals. Discuss how the budgets for each of these costs contribute to the company'..
What is the present value of a lease on a warehouse, where the tenants have a lease that goes into perpetuity ad have agreed to pay $300 at the end of each month of the lease with an annual discount rate of 8 percent?
Billy’s Exterminators, Inc., has sales of $658,000, costs of $310,000, depreciation expense of $62,000, interest expense of $41,000, a tax rate of 35 percent, and paid out $64,800 in cash dividends. The firm has 120,000 shares of common stock outstan..
Dinklage Corp. has 10 million shares of common stock outstanding. The current share price is $82, and the book value per share is $5. The company also has two bond issues outstanding. Suppose the most recent dividend was $5.40 and the dividend growth..
Carby Hardware has an outstanding issue of perpetual preferred stock with an annual dividend of $7.00 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell?
Your firm is contemplating the purchase of a new $545,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $53,000 at the end of that time. You will save $295,000 before..
A company has 100 million shares outstanding trading for $8 per share. It also has $900 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 12%, and its effective corporate tax rate is 40%, what is its w..
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