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Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.40 and it expects dividends to grow at a constant rate g = 5.2%. The firm's current common stock price, P0, is $29.00. The current risk-free rate, rRF, = 4.4%; the market risk premium, RPM, = 5.7%, and the firm's stock has a current beta, b, = 1. Assume that the firm's cost of debt, rd, is 8.09%. The firm uses a 3.7% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places.
What is the value of a semi-annual interest bond with 8 years to maturity, 5% annual coupon, $1,000 par value, and currently priced to yield 4.3%. Suppose that you are interested in buying a bond that pays interest semi-annually. It has an annual cou..
The Niendorf Corporation produces teakettles, which it sells for $15 each. Fixed costs are $700,000 for up to 400,000 units of output. Variable costs are $10 per kettle. What is the operating breakeven point? Illustrate by means of a chart.
On the basis of your analysis, shoul Karen recommen that the bank extend the existing short- and long- term loans and grant the additional $6,375,000 loan, or that the bank demand immediate repayment of all existing loans? If she does recommend conti..
Testing the validity of your calculations by subjecting them to change is known as-Qualitative testing, Horizontal analysis, Vertical analysis, Sensitivity analysis.
RAK, Inc., has no debt outstanding and a total market value of $220,000. Earnings before interest and taxes, EBIT, are projected to be $40,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 10 percen..
Elaine Tolbert is a 28-year-old management trainee at a large chemical company. She is single and has no plans for marriage. Her annual salary is $34,000 (placing her in the 15 percent tax bracket), and her monthly expenditures come to approximately ..
If an investment is producing a return that is equal to the required return, the investment's net present value will be:
Discuss the long-term performance of actively managed mutual funds relative to the Standard and Poor’s 500. What are your thoughts?
Assume you have received $300,000 from your uncle’s estate after his death. Select an appropriate investment policy for investing this inheritance that is consistent with a moderately risk averse investor in each scenario below: you plan on working f..
What annual rate of return is earned on a $2,400 investment when it grows to $5,300 in twenty years? You have decided to place $270 in equal deposits every month at the beginning of the month into a savings account earning 7.63 percent per year, comp..
The balance of the Retained Earnings at the beginning of the year was $950,000 and there were no dividends in arrears. Net income for 2015 was $980,000. What was the amount of dividend declared on each share of common stock during 2015?
A company has a cost of goods of 60% of the selling price of its products. It has $200,000 in fixed overhead for administrative expenses, rent and salaries. In addition, it spends 18% of every sales dollar on marketing. What is the company’s break-ev..
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