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(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.0 percent. Interest payments are $55.00 and are paid semiannually. The bonds have a current market value of $1,125 and will mature in 10 years. The firm's marginal tax rate is 34 percet. The after-tax cost of debt is ____%. (Round to two decimal places.)
b. A new common stock issue that paid a $1.80 dividend last year. The firm's dividends are expected to continue to grow at 7.0 percent per year, forever. The price of the firm's common stock is now $27.50.
c. A preferred stock that sells for $125, pays a dividend of 9.0 percent, and has a $100 par value.
d. A bond selling to yield 12.0 percent where the firm's tax rate is 34 percent.
A project has an initial cost of $50,000, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 9%. What is the project's IRR?
Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?
what is (a) the capitalized cost now, and (b) the equivalent A value of this capitalized cost? Explain the meaning of the A value just calculated.
A share of stock is now selling for $120. It will pay a dividend of $10 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 6% and the expected rate of r..
The Bradley Corporation produces a product with the following costs as of July 1, 2014: Material $ 4 per unit Labor 4 per unit Overhead 2 per unit Beginning inventory at these costs on July 1 was 4,250 units. What is the value of ending inventory?
In August 2008, Apburn Inc. entered into an agreement to purchase all of the outstanding shares of Ballard Corp. for $80 per share. Immediately prior to the Apburn Inc.’s bid, the shares of Ballard Corp. traded at $40 per share. The number of outstan..
What annual benefit must the Dell laptop provide so the IRR will meet an MARR of 9%?
Gordon & Co.’s stock has just paid its annual dividend $1.10 per share. Analysts believe that Gordon will maintain its historic dividend growth rate of 3%. If the required return is 8%, what is the expected price of the stock next year?
Suppose your firm decides to cap the CEO's pay to 7 times that of the lowest paid worker. What are the pros and cons of doing this?
Jules Bergman is aware that there are some qualitative factors that are relevant to the surgery center decision. What qualitative factors might support project acceptance? What qualitative factors might preclude project acceptance?
Does financial literacy play a role in retirement planning? How can financial literacy and personal characteristics impact the retirement planning process?
What is the geometric average return?
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