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You have estimated the optimal debt to capital ratio for RAD, based upon minimizing the cost of capital, to be 50%. a. Estimate the current cost of capital for RAD, assuming that the beta for the stock is correctly estimated at 2.3664, the cost of debt is based upon the rating estimated from the interest coverage ratio and the long term treasury bond rate is 3.7%. RAD has 916.18 million shares outstanding today, trading at $6.67 per share and $5.904 billion in debt outstanding (book as well as market) How do you setup problem.
Will-O-Wind Airlines always invests (in non-depreciating assets) 20% of its earnings, which will be next period (Period 1) $3 per share. The rest it pays out as dividends. Its investment opportunities currently earn (and are expected to earn in the i..
It is July and a trader buys 100 December call options with a strike price of $26. The stock price is $26.51 and the option price is $4.12. At the expiration, the stock price becomes $30.22. Calculate the option profit to the trader. Please show your..
Zack's Inc., an all-equity firm, is subject to a 30% corporate tax rate. Its equityholders require a 20% return. The firm's market value now is $3,500,000, and there are 175,000 shares outstanding. Suppose the firm issues $1 million of bonds at 10% a..
You would like to purchase a $1,000 sofa from Honest Furniture store. The owner, Mr. Honest, says he will work with you to arrange a payment plan over the next 12 months He says he normally charges 12% interest per year and calculates the interest on..
Maxwell Feed & Seed is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected. Year 0 1 2 3 4 5 Cash..
If the public expects a corporation to lose $5 a share this quarter and it actually loses $4, which is still the largest loss in the history of the company, what does the efficient market hypothesis say will happen to the price of the stock when the ..
What was the premium on the Dec. BABA 118 put? Was this option in or out of the money? What was the intrinsic value of this put? What is the time value?
Bullseye, Inc.'s 2008 income statement lists the following income and expenses: EBIT = $703,500, Interest expense = $53,000, and Taxes = $220,500. Bullseye's has no preferred stock outstanding and 270,000 shares of common stock outstanding. What are ..
You can buy a business for $40,000. If you buy it, you can expect to earn these after-tax cash flows during Years 1 through 3: Year 1 = $5,000, Year 2 = $6,000,
DeYoung Entertainment Enterprise is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. What is the initial net cash flow if the new machine is purchased and the old one is replaced..
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $50,000. The truck falls into the MACRS 3-year class, and it will be sold after three years for $20,400. Use of the truck wil..
Which dispatching rule has the best score for work-in-process (jobs in the system)? Which dispatching rule has the best score for flow time?
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