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Your boss believes the company's power plant is producing too much air pollution on a typical island. Your boss gives you three choices for dealing with this problem because he/she does not want to deal with it: You can pay a pollution tax (Carbon Offsets) one time of $13,000,000 immediately. You can close the plant and install a power cable from the mainland to the Island. That will cost you $1,000,000 at the end of this year, $3,000,000 at the end of next year and then $750,000 forever for maintenance. You can retrofit the plant with scrubbers to reduce the emissions to make the plant green. That will cost $7.5m at the end of this year and $100,000 for 50-years for maintenance. Assume that the cost of generating power on the mainland is approximately the same as the cost of generating power at the Island's plant. Assume, this comes as a surprise to you and you, have not saved any money in reserves, and you need to raise capital. Additional information is that market has a 12 percent market risk premium on the power plant with the risk-free rate being 5 percent with a company tax rate of 35 percent. Current total raised capital at the power plant: (This will help you calculate the WACC) Debt – 7,000 outstanding bonds, at 7.5% coupon and 20 years to maturity. These bonds pay interest semiannually and quoted a price of 108 percent of par. Common Stock -180,000 shares outstanding, selling for $50 per share: Beta .90. Preferred Stock – 8,000 shares of 5.5 percent preferred stock outstanding, currently selling for $95.00 per share.
Sun Corp. is thinking of changing their business model. Currently their beta is 2 and the last dividend paid (yesterday) was $2.00. The growth rate of the dividend is constant at 3. If they change their business model, they believe that they can incr..
How would you measure the success of a growth project? When would you want to short sell a stock? How do you short sell a stock?
Grace Hesketh is the owner of an extremely successful dress boutique in downtown Chicago. Although high fashion is Grace’s first love, she’s also interested in investments, particularly bonds and other fixed-income securities. She actively manages he..
The yield to maturity on 1 year zero coupon bonds is currently 8%, the YTM on 2 year zeros is 9%.
How does the beta coefficient influence the firm’s stock value? What is the required rate of return for Olter?
Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital.
Suppose you borrow $20,000 at an effective period rate of i. The loan will be paid back with 20 payments at the end of each period. Each payment will consist of $1,000 plus the interest owed for that period. For example, the first payment will be $1,..
what is your best estimate of the company’s cost of equity capital using arithmetic and geometric growth rates?
The face value of the bond is $1,000, the coupon rate 10% with annual compounding, and the bond matures in 10 years. What is the value of the bond?
The price of a bond with 4% annual coupon and $100 face value in year T is $90. Is the yield to maturity greater than, the same, or less than to the annual coupon rate? Explain in one sentence. Calculate the current yield in period T. Calculate the r..
The firm earned $7,000 in sales last year while selling 20,000 units. Net Income that same year was $850. At the end of that same year, the Balance Sheet reflected $11,000 in total assets, having $3,500 in debt and $7,500 in equity accounts. What are..
What did Jade’s Jeans record as Total Assets on December 31, 2016 balance sheet?
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