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You work for a firm with an issue of 40,000 bonds outstanding and 5,000,000 of market value in preferred stock that sells to yield 6%.
1. What is the value of the preffered stock if it pays a $5 dividend?
2. The common stock has a market value of $50 per share with 100,000,000 shares outstanding. If the growth rate is 6% per annum and the earnings are $4 per share, what is the required rate of return of the common stock?
3. What is the total market value of the firm if the bonds sell for $975 each? $1075 per bond?
4. What is the weighted average cost of capital if the maturity of the bond was 5 years and the coupon rate was 6%.
Microbiotics currently sells all of its frozen dinners cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. If the interest rate is 1.5% per month, what will be the change in the firm's total monthly pr..
This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. What is the effective interest rate?
The following table show pre-merger figures of CH Enterprises and ComYon Corporation: CH Enterprises (Pre-Merger) ComYon Corp.(Pre-Merger) CH Enterprises (Post-Merger) 1) EPS $2.00 $2.00 ? 2) Price per Share $40 $20 ? 3) P/E Ratio 20 10 ? 4) # of Sha..
What are the historical averages of major U.S. securities and the current rate of return in the past decade, are there any significant differences and explain
To buy a new house you must borrow $160,000. To do this you take out a $160,000, 30 year, 12% mortgage. Your mortgage payments, which are made at the end of each year (one payment per year), include the principal and 12% interest on the declining bal..
The net present value method of capital budgeting analysis does all of the following except: Accepting a positive net present value (NPV) project:
The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 15 percent a year for the next 4 years and then decreasing the growth rate to 5 percent per year. The company just paid its..
Pricing objectives and pricing methods in the services sector
An unlevered firm, Marshall Inc., has a constant EBIT of $1,500,000 per year in perpetuity. It is considering the use of some debt financing to repurchase shares. What is Marshall’s market value and the WACC before any debt is taken on? In M&M’s case..
An appraiser is estimating the highest and best use of a vacant site. One of the alternatives being considered as a use for the site is a building that would cost $1 million to construct the improvements. Under this use, NOI is estimated to be $120,0..
The total asset turnover ratio TATO (Sales/TA) of XYZ is 1.60x, its net profit margin (NI/Sales) is 8%, and its debt is half its equity (i.e. D/E ratio is 1/2). The company has $6,000,000 in assets. Calculate XYZ’s return on equity (ROE). The common ..
The payoff of an interest rate LIBOR floor (the opposite of a cap) is of the form max[K - Last period LIBOR rate), 0]. That is, if rates go below K, the option writer will pay the difference, nothing otherwise.
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