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Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $1 million of retained earnings with a cost of rs = 13%. New common stock in an amount up to $10 million would have a cost of re = 16%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 10% and an additional $3 million of debt at rd = 13%. The CFO estimates that a proposed expansion would require an investment of $6.0 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.
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There are several ways to avoid emerging market crises. What are the pros and the cons of currency controls in emerging markets?
The dividends are anticipated to maintain a 6 percent growth rate, forever. If the stock currently sells for $40.77 per share, what is the capital gains yield?
In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following: Pay 1.84 percent per quarter on any funds actually borrowed. Maintain a 2 percent compensating balance on any funds actually borrowed.
Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 6.5% r2 = 7.0% r3 = 7.7% r4 = 8.5% What are the following forward rates, where f1, k refers to a forward rate for the period beginning in one year and ..
Based on the information below, calculate the weighted average cost of capital. Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 10%. They had 25-year terms and $1,000 face..
Little Oil is an oil-drilling company that has defaulted on several of its loans. Giantoil Oil Refining is owed $230,000 on a loan that is secured by some of Little Oil’s drilling equipment. Little Oil does not want Giantoil to keep the equipment and..
If the distribution had a standard deviation of 4, would a score of 82 be considered an extreme value or an average score near the center of the distribution?
You have been managing a $5 million portfolio that has a beta of 1.00 and a required rate of return of 12%. The current risk-free rate is 5.00%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.70, what wi..
Ms. Chambers, a U.S. arbitrageur, is looking for arbitrage opportunities after interest rate changes. The available funds for arbitrage is $5,000,000. The spot exchange rate (Kr/USD) is 6.1720; 3 month forward rate (Kr/USD) 6.1980. If arbitrage is po..
You work for a pharmaceutical company that has developed a new drug. What is the present value of the new drug if the interest rate is 8% per? year?
The core business of TVL Corporation is undergoing a difficult period. TVL bonds have been downgraded to CCC in order to reflect the higher probability of default the company now faces. TVL is considering a very promising (high NPV, low risk) capital..
A share of Ryan & Co. common stock is expected to pay a dividend of $2.40 ( D 1 ) at the end of the coming year. If the expected long-run growth rate for this stock is 6%, and if investors require a 18% rate of return, what is the present value of th..
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