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The management of Blue Thumb Tools believes the firm’s current capital structure is optimal and intends to maintain it in the future. Blue Thumb’s bonds are selling for $950 each. Its common stock is selling for $37 a share and its preferred stock is selling for $88 per share. There are 50,000 bonds outstanding, 10,000,000 shares of stock and 3,000,000 shares of preferred stock outstanding, respectively. What are the current weights of Blue Thumb’s capital structure? 8. Blue Thumb’s stock has a beta of 1.2. The current t-bill yield (risk-free rate,Rf) is 5.5% and the expected return on the market portfolio (Rm) is 11.5%. The company’s preferred stock pays an $8.50 per share dividend each year and the price of it is $88 per share. The yield to maturity of Blue Thumb’s bonds is currently 9.7%. Blue Thumb is in the 30% tax bracket.
Suppose Blue Thumb Tools is considering the introduction of a new, heavier hammer to be used for driving spikes. The new hammer will cost $490,000. The cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the new hammer can be scrapped for $40,000. The new hammer will save the firm $146,000 per year in pretax operating costs, and it required an initial investment in net working capital of $35,000. The tax rate of the firm is 30%.
What is the IRR of this project (list your setups)?
The Dog House expects sales of $560, $650, $630, and $610 for the months of May through August, respectively. The firm collects 20 percent of sales in the month of sale, 70 percent in the month following the month of sale, and 8 percent in the second..
Assume Brown-Murphies faces a flotation cost of 14 percent on new equity issues. What will be the flotation-adjusted cost of equity?
Mike plans to buy a $20,000 new car and borrow this $20,000 from his bank. He needs to pay back in 60 equal monthly payments over 5 years. The annual interest rate his bank offered is 6% compounded monthly. (a) What would be Mike's monthly paymen..
What is your best estimate of the portfolio expected rate of return?
you are an arbitrageur looking for opportunities to capitalise on mispriced securities. you notice that the bhp put
Under the direct write-off method, the entry to write off an uncollectible account of $3,400 includes a:
The accounts receivable and inventory turnover rates remain the same. However a company negotiates with its major supplier of inventory to allow an extra 15 days in which to pay with no finance charge and with no loss of price discount.
Explain the cash conversion cycle (CCC) and net working capital. Why is this important to the contemporary executive? How do executive decisions regarding CCC and net working capital affect the company?
Over the past 4 years, large-company stocks and U.S. Treasury bills have produced the returns stated below. Given this information, What are the average rates of return on large-company stocks and Treasury bills? What are the standard deviation for l..
Which of the following is not an effect of capitalization?
Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.73 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The firm has a target debt−equity ratio..
Otis is the CEO of Rectify, Inc., a private foundation. Otis invests $500,000(80%) of the foundation’s investment portfolio in derivatives. Previously, the $500,000 had been invested in corporate bonds with an AA rating that earned 4% per annum. Dete..
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