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Although debt financing is usually the cheapest component of capital, it cannot be used in excess because
A. interest rates may change.
B. the firm's stock price will increase and raise the cost of equity financing.
C. the financial risk of the firm may increase and thus drive up the cost of all sources of financing.
D. underwriting costs may change.
Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 40% debt and 60% equity; however, the CEO believes the firm should use more debt. The risk-free rate, rRF, is 6%; the market risk pre..
We are evaluating a project that costs $1,160,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 44,000 units per year. Calculate the best-case an..
Determining the Cost of Capital. What is the firm’s weighted average cost of capital (WACC2) if it has to issue new common stock?
Cash Budgeting Helen Bowers, owner of Helen’s Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2015 and 2016: Prepare a monthly cash budget for the last ..
Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of 0.80. It’s considering building a new $42 million manufacturing facility. This new plant is expected to generate aft..
Construct a binomial tree of possible futures values in 4 weeks assuming one week time intervals. What is the value of p for this futures contract?
Hick Mining is evaluating when to open a gold mine. The mine has 48,800 ounces of gold left that can be mined, and mining operations will produce 6,100 ounces per year. The required return on the gold mine is 11 percent, and it will cost $34.1 millio..
Our new project proposal will require roughly 500 hours of total staff time and $1,000 in materials. Our total staff budget is $520,000 for 10 full time equivalents (FTE). How much will our new proposal cost the taxpayers?
Oak Enterprises has a beta of 1.2, the market return is 8%, and the T-bill rate is 4%. What is their expected required return of common equity?
Adept NV is analyzing a proposed project. The company expects to sell 2,500 units, give or take 10%. The expected variable cost per unit is €8 and the expected fixed costs are €12,500. The sale price is estimated at €16 a unit, give or take 2%. The c..
Fresno Corp. is a fast-growing company that expects to grow at a rate of 23 percent over the next two years and then to slow to a growth rate of 14 percent for the following three years. If the last dividend paid by the company was $2.15.
You have been diligently saving to buy a boat. For the last 10 years, you have been putting $50 per month into a secret savings account paying .5% interest per year. You started with $0. You just discovered that your spouse knew about the account the..
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