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How would each of the following effect (raise, lower, no effect, or indeterminant) the cost of debt capital [rd(1-t)], the cost of equity capital [rs], and overall cost of capital [WACC]?
A. corporate tax rate is reduced.
B. Federal Reserve tightens credit
C. Dividend pay ratio is increased
D. The firm uses more debt (rd<rs)
E. Investors become more risk averse.
Calculate degree of operating leverage given:
Prepare journal entries for each transaction. - Prepare the equity section of the balance sheet at each year-end, December 31.
Suppose that Unkempt Inc. common stock paid an annual dividend last year of $2.13, has a cost of common equity of 14%, and had a dividend growth rate of 1%, what would the common stock be worth on a per share basis? If there are 100 million shares ou..
Green Valley Farms is considering either leasing or buying some new farm equipment. The lessor will charge $19,000 a year lease. The purchase price is $56,000. The equipment has a 3-year life after which time it will be worthless. Green Valley Farms ..
If a firm's beta increased, everything else being the same, its required rate of return would
The Fed cuts the Federal Funds rate and the Discount rate and the Prime goes down to 3.5 percent. Al Truistyk owns an exercise center and needs to upgrade his equipment in order to meet his customers’ needs. The equipment costs $275,000 and the lende..
Assume that you are the CFO of a local YMCA. You and your administrative team are considering making an investment in a day care facility to meet the ongoing child care needs of your members. What would your decision be if the NPV were negative? What..
Calculate the equity capital ratio. If $2 million in bad loans were removed from the bank’s assets, show how the equity capital ratio would change.
Grunewald Industries sells on terms of 2/10, net 40. Gross sales last year were $4,562,500 and accounts receivable averaged $437,500. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of t..
Pierre receives a thirty-year annuity paying $200(1.03)^t + $100(1.02)^2t + $80t − $60 at the beginning of the t-th year. Find the value of this annuity at the end of the tenth year if the annual effective interest rate remains 4% during the thirty y..
The proceeds of a 10,000 death benefit are left on deposit with an insurance company for seven years at an effective annual interest rate of 5%. The balance at the end of seven years is paid to the beneficiary in 120 equal monthly payments of X, with..
What is the project’s internal rate of return? If the cost of capital is 14.5% would you accept the project?
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