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Mass Inc. is trying to estimate its optimal capital structure. Right now, Mass Inc. has a capital structure that consists of 50 percent debt and 50 percent equity, based on market values. (Its D/S ratio is 1.00) The risk- free rate is 6 percent and the market risk premium, KM – KRF, is 5 percent. Currently the company’s cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent. What would be Mass Inc.’s estimated cost of equity if it were to change its capital structure to 60 percent debt and 40 percent equity?
What is the most expensive type of EXTERNAL financing of equity for a company? Why? How can a company use economies of scale when it comes to external raising of capital through equity? Describe the types of fees that are typically included in flotat..
“Before there was Paris Hilton, there was Consuelo Vanderbilt Balsan – a Gilded Age heiress and socialite, re-nowned for her beauty and wealth. Now Ms. Balsan’s onetime Hamptons home is slated to hit the market priced at $28 million with Tim Davis of..
What is the projects NPV and Should the project be accepted - Why or why not - Applying Various Capital Budgeting Methodologies
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next eleven years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $15.00 per share 12 yea..
Simon recently received a credit card with an 18% nominal interest rate. With the card, he purchased an iPad for $350. The minimum payment on the card is only $10 per month. How much interest in total does he pay on his credit card debt?
A bank offers two 30 year, fixed rate, fully amortizing LPMs: an 85% LTV loan at 6%, and an 80% LTV loan at 5.5%. What is the marginal cost of borrowing if the loan is going to be held for 10 years?
A couple plans on refinancing their existing mortgage. They currently owe $150,000 (which represents 70% of the value of the house) with 15 years left on the loan and monthly payments of $1300. A new loan will be financed at the 15 year fixed rate fo..
Last year Joan purchased a $1,000 face value corporate bond with an 11% annual coupon rate and a 10 year maturity. At the time of purchase, it had an expected yield to maturity of 9.79%. If Joan sold the bond today for $1060.49 what rate of return wo..
Suppose that the risk-free rate is 5% and that the market risk premium is 7%. What is the required return on (1) the market, (2) a stock with a beta of 1.0, and (3) a stock with a beta of 1.7? Assume that the risk-free rate is 5% and that the market ..
You want to add an additional stock to your portfolio and are considering two alternatives. For stock A, the expected return is 14.20% and the beta is 1.62. For stock B, the expected return is 8.40% and the beta is 0.46. According to the Capital Asse..
Consider cash-collection time. How can a firm minimize this time, and what are some of the costs? Do we worry about this as individuals as well? If so, how? How can sales be used to develop pro forma financial statements?
Tre-Bien, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected.
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