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Hashem Hats Inc. needs to develop an estimate of its cost of capital. Assume that you are an assistant to the financial vice president. He has provided you with the following information:
The firm’s marginal tax rate is 40%. The current price of the firm’s 12 percent coupon, semiannual payment bonds with 15 years remaining to maturity is $1,153.72. The current price of the firm’s 10% $100 par value quarterly dividend perpetual preferred stock is $110.00. TSI’s common stock is currently selling at $50 per share. Its last dividend was 4.19, and dividends are expected to grow at a constant rate of 5 % forever. The firms’s beta is 1.2, the yield on T-bills is 7 percent, and the market risk premium is estimated to be 6%. For the bond yield plus risk premium approach, the firm uses a 4% risk premium. The firm estimates that if it issues new common stock, the flotation cost will be 15 percent. TSI’s capital structure is 30 percent debt, 10 percent preferred stock, and 60 percent common equity. The firm’s component cost of equity is 14% The firm has $1 million in its retained earnings account. Ignore all extraneous information in the above passage. Please provide the following, showing all work:
Calculate the firm’s component cost of debt and component cost of preferred stock. Then, asssume that Hashem Inc. is considering a single project this capital budgeting period, labeled Project C. This 3 year project has an initial cost of $100 dollars and pays three annual cash flows of $50 at the end of each year. Find the NPV of Project C. Show all work.
If the opportunity cost of capital (interest rate) is 10% per year compounded annually what is the future value?
Critically evaluate various approaches to the financial management. What are the differences between fund flow and cash flow? What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 7%? If interest rates in gene..
What is the U.S. nominal exchange rate against the euro? - What is the European nominal exchange rate against the U.S. dollar?
Netscrape Communications does not currently pay a dividend. You expect the company to begin paying a $2.2 per share dividend in 8 years, and you expect dividends to grow perpetually at 3.2 percent per year thereafter. If the discount rate is 14 perce..
Calculate the project cash flows for the first 4 years of this business.
The tax rate is 35 percent, and we require a return of 15 percent on this project. Calculate the base-case cash flow and NPV.
Assume that a bank has the following- Stock issued : $15,000,000, Retained earnings : 2,750,000. - What is its Core Capital? - What is its total capital?
You have $180,000 to invest. You choose to put $230,000 into the market by borrowing $50,000.
If the spot rate for the Swiss Franc is that 1.15 SF is equal to 1 US $, and the annual interest rate on fixed rate one-year deposits of SF is 0.25% and for US$ is 1.75%, what is nine-month forward rate for one dollar in terms of SFs? Assuming the sa..
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $760 per set and have a variable cost of $382 per set. The company has spent $191425 for a marketing study that determined the company will sell 55749 sets per year fo..
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,280,000; the new one will cost, $1,540,000. The new machine will be depreciated straight-line to zero over its five-year life. Calculate the EAC for the ol..
The company maintains a constant growth rate in dividends. What is this growth rate?
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