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1. Assuming perfect capital markets:
Firm Xi has a market beta for their equity of 1.2 and currently has a D/E ratio of 1.4. If you consider changing the D/E ratio to 1.6 how does this change the firm's equity beta (assume the beta of the debt is 0 when the D/E ratio is 1.4, but becomes 0.01 when the D/E ratio is 1.6)? Also figure out the new expected return of the equity if rm=.12 and rf=.04?
2. Flint Co. has FCF of 5 million per year which should grow 5% per year, the expected return on equity is 12% and rD=.06 and the firm has a D/E ratio of 0.7 with an appropriate tax rate of 37%. With the above information, value what the company is worth without an interest tax shield.
Now, value the company with a tax shield and explain how much value the interest tax shield adds.
Determine the amount of funds released by the lockbox arrangement.- The annual (pretax) earnings on the released funds.
You wrote a piece of software that does a better job of allowing computers to network than any other program designed for this purpose. If the appropriate interest rate is 6 percent, what is the present value of the cash flow stream that the company ..
Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (r) is 12.0%. What is the best estimat..
Security X has expected return of 12% and standard deviation of 20%. Security Y has expected return of 15% and standard deviation of 27%. If the two securities have a correlation coefficient of 0.7, what is their covariance?
If local mortgage rates are 4.5% per year compounded monthly for a conventional 30-year mortgage, what is the price range of houses that they should consider?
Suppose that there are no dividends paid by Google and the interest rate for borrowing or lending is 5% per annum. How could you make money if the June and December futures contracts for a particular year trade at $530 and $550, respectively? When wo..
Assume the credit terms offered to your firm by your suppliers are 2.6?/4, Net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30.
What method is used for calculation of the accounting beta?
You have been asked to calculate the price of a firm using free cash flow evaluation. Last year XYX Company has Free Cash Flow of $12 million. You expect the cash flows to grow at 10% for the next two years, then at 9% for the following two years and..
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow 0 –$ 27,000 1 11,000 2 14,000 3 10,000 What is the NPV for the project if the required return is 10 per..
Thomas Brothers is expected to pay a $3.1 per share dividend at the end of the year (that is, D1 = $3.1). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 19%. What is the stock's curr..
He rents the trucks on an asneeded basis about twice per week. If his tax rate is 8%, then what is his after tax lease payment?
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