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Fair and Equitable has to determine its cost of capital using the following information: The firm has $30,000,000 in corporate bonds currently selling at 97.5. The bonds mature in 9 years and have an annual coupon rate of 6.6% paid semiannually. F&E faces a 35% tax rate. This firm has 1,500,000 shares of preferred stock that pays a dividend of $0.80 per year and currently sells for $9.00 per share. Common stock selling for $3.45 per share has just paid a dividend of $0.29 and is expected to grow by 4% forever. The firm has a beta of 1.3 and the risk free rate on treasury securities is 3%. The average return on the S&P500 is 10.54%. Calculate the cost of capital for the firm. Fair and Equitable has 20 million common shares outstanding.
What are the expected inflation rates in US and UK? What is the expected % change in pound's value over the next year?
Due to a recession, expected inflation this year is only 3%. However, the inflation rate in year 2 and thereafter is expected to be constant at some level above 3%. Assume that the expectation theory holds and the real risk free rate (r*) is 2%. If t..
Antitrust policy can preclude the acquisition of a competitor. The dividend yield is the cash dividend divided by the current market price of the stock. Basic earnings per share include all convertible bonds outstanding. Investors will generally cho..
Nonconstant growth Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $1.25 comin..
You like to invest $10,000 in a complete portfolio. what is the standard deviation of the complete portfolio in the problem?
How many years will it take to reach your goal. You borrow $250,000; annual loan payments are $38,075.05 for 30 years. What interest rate are you being charged?
Please make your initial post by midweek, and respond to at least one other student's post by the end of the week. Please check the Course Calendar for specific due dates.
Compute the ‘fair’ value of the two nearest to expiration futures contracts on the S&P500 Index (SPX) using SPX as the underlying asset. Did the futures contract settle above or below SPX?
An investor will choose between Asset Q with an expected return of 6.5% and a standard deviation of 5.5%, Asset U with an expected return of 8.8% and a standard deviation of 5.5%, and Asset B with an expected return of 8.8% and a standard deviation o..
Jim Jones has recently been appointed to the Board of Directors of Youngstown Medical Center, a 300 bed nonprofit community hospital. He is reviewing the financial package that was sent to him that includes 28 pages of financial information consistin..
what is the difference in the value of the two coins 25 years from now?
FreddieMac reports that the average rate on a 30-year fixed rate mortgage is 3.92% as of January 2012. This is down from 4.76% in January 2011 and 5.03% in January 2010. If you have a $230,000, 5%, 30-year mortgage, how much interest will you save if..
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