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Connect Charter, Inc. can buy new software that is anticipated to provide a 12 percent return and can be financed at 7 percent with debt. The firm is also considering buying a new charter bus that would yield a 13 percent return but would cost 15 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firm's capital structure.
a. Compute the weighted average cost of capital.
b. Which project(s) should be accepted?
Pacific Packaging's ROE last year was only 5%; but its management has developed a new operating plan that calls for a debt-to-capital ratio of 40%, which will result in annual interest charges of $252,000. Under these conditions, the tax rate will b..
We have a firm whose ITO and ATO are 11 and 10 respectively and rising, while the industry’s are 4 and 3. Liquidity ratios are comparable to the industry. Net profit margin and gross profit margin are 1% and 2% respectively and slightly rising. The t..
According to expectations theory if the 1 year interest is 3% this year and expected to be 5% next 17 year, the 2 year interest rate should be approximately.
A company currently pays a dividend of $2.00 per share (i.e., D0=$2.0). What is your estimate of the company's current stock price, P0?
Consider a case of a routine medical checkup for a pregnant woman. Suppose that a new ultrasound method is introduced. A checkup using the new method costs 10% more than a checkup using the old method.
In working capital management, risk is measured by the probability that a firm will be
Stock in CDB Industries has a beta of .90. The market risk premium is 7 percent, and T-bills are currently yielding 3.5 percent. CDBs most recent dividend was $1.80 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely..
A stock has a required return of 13%; the risk-free rate is 5%; and the market risk premium is 4%. What is the stock's beta?
Johnson Products earned $4.20 per share last year and paid a $1.55 per share dividend. If ROE was 14 percent, what is the sustainable growth rate?
Clarkson and Lee did not have a contract, but Clarkson completed extensive landscaping in Lee’s yard by mistake while Lee was away on vacation. Clarkson sent Lee a bill for the landscaping service but Lee refused to pay. Determine the likely result i..
Woidtke Manufacturing's stock currently sells for $32 a share. The stock just paid a dividend of $2.25 a share (i.e., D0 = $2.25), and the dividend is expected to grow forever at a constant rate of 4% a year. What stock price is expected 1 year from ..
A building is appraised at $1 million. This estimate is based on forecasted net rent of $100,000 per year discounted at a 10% cost of capital [PV = 100,000/ 0.1 = 1,000,000]. The rent is the net of repair and maintenance costs and taxes. How much wou..
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