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The PMBA Corp (beta = 1.3) is trying to determine it cost of equity. You have been asked to give the cost of equity using a variety of methods. The methods to be used are the CAPM, and the DCF model. The risk free rate is 2.00%, and the risk premium on the market is 5.50%. The stock is expected to pay a dividend of $3.00 next year, the stock is trading at $100 per share, the return on equity is 12% and the retention ratio is 80%. You have been told the return for the Small sized portfolio minus the bid-sized portfolio is 3.00%, and the slope coefficient is .3, the high book to market portfolio minus the low book to market value portfolio is -2.00% and the factor weighting (slope) is .4. Calculate the three costs on equity. Explain the different in the results.
Find the following values, using the equations, and then work the problems using a financial calculator to check your answers. Disregard rounding differences. Then, without clearing the TVM register, you can "override" the variable that changes by si..
Assume 1 year has gone by and it is now Jan 1, 2012. Further assume you bought the bond for the price calculated in question 2 (Bond price $973.27) on Jan 1, 2011. Since then, market interest rates (and the discount rate) for this type of bond increa..
A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $1,700 per month for the next three years and then $3,400 per month for two years after that. If the bank is charging customers 9.25 percent APR, ..
Compute the Macaulay duration of a ten-year 6% $1,000 bond having annual coupons and a redemption of $1,200 if the yield to maturity is 8%.
A homeowner takes a 20-year fixed-rate mortgage for $100,000 at 7.2 percent. After nine years, the homeowner sells the house and pays off the remaining principal. How much is the principal payment?
We are examining a new project. We expect to sell 5,600 units per year at $70 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $70 × 5,600 = $392,000. After the first year, the project can ..
Imagine what the financial world would like look in both the U.S. and in the world if the Federal Reserve did not exist. Provide support for your rationale.
Project H requires an initial investment of $100,000 and the produces annual cash flows of $45,000 per year for each of the next 3 years. Project T also requires an initial investment of $100,000 and produces cash flows of $30,000 in year 1, $40,000 ..
Given the following information, what is the financial break-even point? Initial investment = $300,000; variable cost = $120; fixed cost = $65,000; price = $150; life = 6 years; required return = 10%; straight-line depreciation; salvage value of asse..
What is the right price for a stock? Is it book value, liquidation value or simply its market priceat a given moment of time? Would you value a privately-owned company where there is no market value differently than a publicly owned company
Two 100-horsepower motors are under consideration by the Mighty Machinery Company. Motor Q costs $5,000 and operates at 90% efficiency. Motor R costs $3,500 and is 88% efficient. How many hours of full-load operation are necessary each year in order ..
Victor invests 300 into a bank account at the beginning of each year for 20 years. The account pays out interest at the end of every year at an annual effective interest rate of i% . The interest is reinvested at an annual effective rate of (i/2)%. T..
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