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1. The required return on equity for a levered firm is 10.60%. The debt to equity ratio is ½ the tax rate is 40%, the pre-tax cost of debt is 8%. Find the cost of capital if this firm were financed entirely with equity.
2. SRS, Inc. just paid an annual dividend of $2.68 last month. The required return is 14.1 percent and the dividend growth rate is expected to be constant at 2.2 percent. What is the expected value of this stock ten years from now?
3. Last week, Onboard Co. has announced that the next two annual dividends will be in the amount of $2.44 and $4.26, respectively. After that, the dividends will increase by 2 percent annually. The required return on this stock is 14.24 percent. What is the current price per share? (Hint: draw this out on a timeline.)
Find the amount to which $500 will grow under each of these conditions: 12% compounded annually for 5 years. 12% compounded quarterly for 5 years.
If a 6% annual coupon bond is currently traded at $1150, the YTM of the bond should be larger than 6%. If a bond with a discount rate of 10% is currently traded at $1050, the coupon rate should be smaller than 10%. If the YTM for a 9% annual bond is ..
Explain how a bond can be classified as a fixed-income security when the yield to maturity can fluctuate significantly over time, depending on the market price of the bond.
You buy one share of RWG stock and one European 25-strike put option on RWG stock. For each of the following two RWG stock prices, find the value of your combined position in the stock and the put option on the expiration date of the option. a. On th..
What is the firm’s equity multiplier? What is the firm’s debt–equity ratio?
A firm enjoys net sales of $3,500,000. Cost of goods sold is $2,000,000, depreciation expense is $100,000, and other management and administrative expenses at $350,000. It records interest expense at $200,000 and is taxed at the marginal tax rate of ..
The stock’s last dividend was $0.94 per share and dividends are expected to grow forever at constant rate of 7.2% per year. What is intrinsic value per share.
You are interested in obtaining a home equity loan. Your condo was purchased five years ago for $125,000 and now has a market value of $156,000. Originally, you paid $25,000 down on the condo and took out a $100,000 mortgage. What will your credit li..
Describe an aggressive working capital policy. What are the benefits of such a policy, and what are the potential costs?
Jallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $10,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $2,200 every six months over the subsequent eight years, and ..
What is the value of the firm's tax shield (i.e. the change in firm value due to the use of leverage in the capital structure)?
What is the common size percentage for the inventory account? Please show how to find common size percentage.
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