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A company is 37% financed by risk-free debt. The interest rate is 12%, the expected market risk premium is 10%, and the beta of the company’s common stock is 0.62.
a. What is the company cost of capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. What is the after-tax WACC, assuming that the company pays tax at a 35% rate? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
If an investment has a 20%(0.20) probability of returning $1,000; a 30%(0.30) probability of returning $1,500; and a 50%(0.50) probability of returning $1,800; the expected value of the investment is: Uncertainties that are not quantifiable: Suppose ..
A company currently pays a dividend of $2.25 per share (D0 = $2.25). It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 6% thereafter.
Explain how capital reduces banking risks. Discuss the importance of cash flows and economic (market) value rather than accounting value.
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Steve buys a house from Jim. There is no written contract. However, Steve pays the purchase price, moves onto the property, and begins to build a new garage. Jim seeks to evict Steve from the property stating that there was never a valid contract. Is..
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You want to purchase a boat that costs $40,000. You want to finance as much of the purchase as possible with a 5-year bank loan at 12% compounded monthly, but can only afford loan payments of $750 per month. How much will you need as a down payment t..
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