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Blammo, Inc. has a target capital structure of 30% debt and 70% equity. The firm is planning to invest in a project that will necessitate raising new capital. New debt will be issued at a before-tax yield of 14%, with a coupon rate of 10%. The equity will be provided by internally generated funds so no new outside equity will be issued. If the required rate of return on the firm's stock is 22% and its marginal tax rate is 35%, compute the firm's cost of capital.
The new stock has an estimated flotation cost of $3 per share. What is the company's cost of equity capital?
Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely.
Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or a 20 year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.
Depreciation is computed using MACRS over a 5-year life, and the cost of capital is 9 percent. Assume a 40 percent tax rate. What will the year 1 operating cash flow for this project be?
If the yield on 3-year Treasury bonds equals the 1-year yield plus 2.75%, what inflation rate is expected after Year 1? Round your answer to two decimal places.
Student A is considering to finance her college education by selling programs at the football games for school. There is a fixed cost of $400 for printing these programs, and the variable expense is $3.00.
What types of risks should shareholder wealth-maximizing managers seek to offset in a firm they are managing? Why?
How much in new fixed assets are required to support this growth in sales? Assume the company maintains its current operating capacity.
A stock has an expected return of 0.10 and a variance of 0.24. What is Its coefficient of variation?
A bond trader purchased each of the following bonds at a yield to maturity of 7 percent. Immediately after she purchased the bonds, interest rates increased to 7.5 percent. Which is the percentage change in the price of each bond after the increas..
The returns on your portfolio over the last 5 years were -5%, 20%, 0%, 10% and 5%. What is the standard deviation of your return?
Project K costs $55,000, its expected cash inflows are $13,000 per year for 8 years, and its WACC is 7%. What is the project's discounted payback? Round your answer to two decimal places.
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