Firm new cost of stock

Assignment Help Business Economics
Reference no: EM133067780

Assume that a new firm will require $50,000,000 in initial capital: 40.0 percent as debt and 60.0 percent as stock. At the time of issue, the firm's before-tax cost of debt will be 6.00 percent, the firm's cost of a stock will be 18.00 percent, and the firm's tax rate will be 40.0 percent. Also assume that all cash flows will be perpetuities, that all net income will be paid out to the stockholders as dividends (zero growth), that there will be no additional investments in current or fixed assets, and that there is no depreciation. Now assume that the firm will have a NOPAT of $7,120,000 in Years 1 through infinity. Given this information, determine what the firm's new cost of stock (rs) will be after equilibrium is achieved.

Reference no: EM133067780

Questions Cloud

Web services project : What software is needed and compare this with other common approaches for Mobile development. Argue the need for cross-platform Mobile development frameworks.
Critically utilize the new disruptive technologies strategy : Critically apply, and utilize the new disruptive technologies strategy in the finance sector in the UAE - critical awareness knowledge issues, as the basis
What are the benefits and limitations of a company : -Diversifiable risk, also known as unsystematic risk, is defined as firm-specific risk and hence impacts the price of that individual stock rather than affectin
Determine the sum of all the terms in the sequence : If the first 5 terms of an infinite geometric sequence are 100, 60, 36, 21.6, and 12.96, then determine the sum of all the terms in the sequence
Firm new cost of stock : Assume that a new firm will require $50,000,000 in initial capital: 40.0 percent as debt and 60.0 percent as stock. At the time of issue, the firm's before-tax
Dissertation timeline : Completion of the dissertation primarily rests upon you, the doctoral student. However, research indicates that self-regulated learning strategies predict
Calculate diycost of debt : If the market value of the second debt is 86% of the market value of the first debt, calculate DIY's cost of debt. (Answer in decimal)
Prepare necessary journal entries for the month of january : Prepare the necessary journal entries for the month of January for the Quilter Company for each situation - The Company paid $1,000 for the January rent
Compute today european call option price : Suppose an option matures after T=l year and has a strike price of $55, the stock price is $60. The stock price evolves according to the Cox-Ross-Rubinstein

Reviews

Write a Review

Business Economics Questions & Answers

  Fault for causing the great recession of 2008

Government policies and practices, were they partly at fault for causing the Great Recession of 2008? Please elaborate.

  What will be the free-market wage rate and employment level

Suppose the supply of labor is given by LS = 10w , where LS is the quantity of in millions of persons employed each year, and w is the wage rate in dollars per hour. The demand for labor is given by LD = 80 -  10w. What will be the free-market wage r..

  Draw indifference curves that are consistent

On the graph, draw indifference curves that are consistent with his choice of working hours when he was self-employed and when he worked for Glitz and Drywall.

  Contributed by meenakshi sundaram-tennessee tech university

Determine what the maturity date should be so that the purchaser may enjoy a 12% nominal rate of return on this investment.

  What are the pros and cons for local company

What are the pros and cons for local company (Canadian) having a workforce located in another country?

  Explain why does myspace attract so many visitors

Explain why does MySpace attract so many visitors. Why does MySpace attract so many visitors.

  What is the equilibrium without patent system

Two firms, A and B, compete à la Bertrand when selling a homogeneous good whose demand equals P = 400 − Q. Each firm’s constant marginal and average cost of producing the good equals 60. What is the equilibrium without a patent system? Is the patent ..

  A commercial banks reserve assets consist

A commercial bank's reserve assets consist of...

  High quality date catch in order to effectively signal

How many PokÈmon would a low quality date be willing to catch to earn a date with my daughter? How many PokÈmon must a high quality date catch in order.

  Marginal rate of technical substitution between studying

Will’s grade (G) for an upcoming exam depends on the number of hours he studies marginal analysis problems (A), and the number of hours he studies supply and demand problems (R). Specifically, his grade production function is G = 7A0.5R0.5. What is W..

  Determine which game this is and find the nash equilibrium

Your professor lost two homework assignments, one which was yours and one which belonged to one of your classmates. Your professor remembers that the grade was the same on both assignments, but doesn't remember what it was. Assume that players can on..

  Monetary and fiscal policies

The financial crisis of 2008 caused macroeconomists to rethink monetary and fiscal policies. Economists, financial experts, and government policy makers are victims of what former Fed chairman Alan Greenspan called a "once in a century credit tsunami..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd