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Kruschev Corp. is a regulated monopoly electrical utility. It has just paid a dividend of $1.50 per common share. Given its monopoly position; dividends are expected to grow at a rate of 3% per year for the foreseeable future, i.e. in perpetuity. The standard deviation of the stock’s return is 0.21 and its correlation with the market portfolio is 0.6. The expected return on the market portfolio is 10.2% and its standard deviation is 0.1. The risk-free interest rate is 3.2%. What should be the current price of Kruschev Corp common stock?
A furniture manufacturer is planning on buying a new industrial sander costing $118,000. The sander has projected maintenance costs of $16,000 annually over the three-year life of the sander. At the end of the three years, the sander will be worthles..
Calculate the duration (measured in six-monthly periods) for a coupon-paying bond maturing in two years, where the bond has a face value of $100 000, yield of 7% p.a. and coupon rate of 9% p.a. Assume interest rates are paid half yearly and the last ..
A company has liabilities of 2000 and 5000 due at the end of years one and three respectively. The investments available to the company are two zero coupon bonds. The First one-year 1000 par value bond with an annual effective rate of 5.6%. The secon..
Staal Corporation will pay a $3.40 per share dividend next year. The company pledges to increase its dividend by 4.5 percent per year indefinitely. If you require a return of 11 percent on your investment, how much will you pay for the company's stoc..
Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $8 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facil..
You have been asked to calculate the debt ratio for a firm that has following components to its financing firms: the firm has 1 million shares outstanding,trading at $50 per share, the firm has &25 milion in straight debt,carrying a market interest r..
Jiminy's Cricket Farm issued a 30-year, 10.6 percent semiannual bond 6 years ago. The bond currently sells for 85 percent of its face value. The company’s tax rate is 38 percent. What is the pretax cost of debt? Which is more relevant, the pretax or..
How does an open market sale of Treasury securities by the Fed affect the price of Treasury securities, the yield on Treasury securities, the monetary base, and the money supply?
First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually. If you made a $57,000 deposit in each bank, how much more money would you earn from your Second City..
Assuming that the payments are received at the beginning of each year, what is the maximum amount you would pay for this investment, given a 12 percent required rate of return?
Estes Park Corp. pays a constant $9.20 dividend on its stock. The company will maintain this dividend for the next 8 years and will then cease paying dividends forever. If the required return on this stock is 12 percent, what is the current share pri..
Present Value and Multiple Cash Flows. Investment X offers to pay you $3,400 per year for nine years, whereas Investment Y offers to pay you $5,200 per year for five years. Which of these cash flow streams has the higher present value if the discount..
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