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Question: What is an appropriate required rate of return (hurdle rate) for Food Products and Instruments? How did you get it? (Hints: you may want to use the capital asset pricing model (CAPM) to estimate the cost of equity)
Chestnut Foods Estimation of WACC for Chestnut Foods (year-end 2013) Chestnut Foods Hurdle Rate as of December 2013: 7.0% Chestnut uses a hurdle rate that reflects prevailing rates of return in financial markets using a weighted average of both debt and equity securities. The current mix of debt and equity in Chestnut's capital structure on a market-value basis is 20% debt and 80% equity. The prevailing yield on debt of similar credit risk is estimated at 3.5%. Based on a marginal corporate tax rate of 37%, the after-tax cost of debt is 2.2%. The cost of equity for Chestnut is estimated at 8.2% based on the CAPM with a beta of 0.9, a market risk premium of 6.0%, and a risk-free rate of 2.8%.* Based on these estimates, the WACC is 7.0%. * An alternative model that uses a market risk premium of 9% and a risk-free rate of 0.1% gives a similar cost-of-equity estimate. PLEASE CLARIFY HOW TO GET D/E RATIOS.
WACC Food Processing market risk premium 9% risk-free rate 0.1% debt ratio 60% equity ratio 40% tax rate 37% cost of debt 2.20% cost of equity 4.8% WACC 3.22%
Instruments market risk premium 9% risk-free rate 0.1% debt ratio 40% equity ratio 60% tax rate 37% cost of debt 2.20% cost of equity 9.4% WACC 6.52%
Applying the matching principle Suppose on January 1 Aiden's Tavern prepaid rent of $14,400 for the full year.
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a 10-year coupon paid semianually bond has a face value of 1000 you buy it at par and sell it one year later for a 6
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organic chicken company has a debt-equity ratio of 0.65. return on assets of 8.5 percent and total equity is 540000.
a preferred stock is currently valued at 49 a share and pays an annual dividend of 4. the par value is 100 per share.
The Felix Filter Corporation maintains a debt-equity ratio of .6. The cost of equity is 16 percent, the cost of debt is 11% and the marginal tax rate is 30 percent.
If preferred stock with an annual dividend of $10 b for $200, what is the preferred stock's expected return. Work would be appreciated?
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