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Dave Inc. recently hired you as a consultant to handle project valuation. You have obtained the following information. The firm has 2 million shares of common stock outstanding. The common stock just paid a dividend of $1. It is expected to grow by 30% per year for the next 2 years. After that, the dividend is expected to grow at a constant rate of 5% per year forever. The market value of debt is $20 million. The current risk-free rate is 3% and the market premium is 10%. The company’s equity beta is 1.4 and the corporate tax rate is 35%. a. What is Dave’s current stock price per share? b. What is the company’s WACC? c. Suppose you have a project that’s going to cost $7 million initially, and it will generate cash flow of $1.5 million every year for 6 years, starting from year 3. Assume the project is as risky as the firm, will you take it?
You have been asked to value a company using the FCF method. The free cash flow last year for the company was $20 million. Free cash flow for next year expected to be -$20 million. The following year you expect is to be $15 million. You have been ask..
The Lade & Bach Company produces office chairs. The price of the chairs is $99.75 and the variable cost per chair is $49.75. The following fixed costs are incurred: What is the breakeven point in number of chairs? How many chairs must be sold for the..
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What is the absolute value of the difference between the prices of these two bonds?
Grandview Clinic has fixed costs of $2 million and an average variable cost rate of $15 per visit. Its sole payer, and HMO, has proposed an annual capitation payment of $150 for each of its 20,000 members. Past experience indicates that the populatio..
Gorton claims that all financial crises involve bank runs. An example of this is that interbank loans among domestically chartered commercial banks (interbank loans, domestically chartered commercial banks, seasonally adjusted (H8/H8/B1045NDMAM) fell..
What is the operating cash flow? What is the value of the total assets?
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What is the required rate of return on a stock with a beta of 0.7? For the coming year, what is the expected current yield?
Tyler Trucks stock has an annual return mean and standard deviation of 12 percent and 41 percent, respectively. Michael Moped Manufacturing stock has an annual return mean and standard deviation of 23.0 percent and 67 percent, respectively. What is t..
You have just struck oil in the middle of your hay field. An oil company has offered to pay you a perpetual annuity of $12,500 per year for rights. What is the value of the offer, assuming a 10% discount rate?
Describe and explain in 2-3 pages the trade- off theory of capital structure. How is it related to the use of debt instead of stock (equity financing) in order to raise capital?
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