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Stuart, Inc. reported net income of $20 million for last year. Depreciation expense totaled $15 million and capital expenditures came to $5 million. Free cash flow is expected to grow at a rate of 5% for the foreseeable future. Stuart faces a 40% tax rate and has a 0.40 debt to equity ratio with $75 million (market value) in debt outstanding. Stuart's equity beta is 1.3, the risk-free rate is currently 6% and the market risk premium is estimated to be 9.0%. What is the current value (in millions) of Stuart's equity?
The U.S. Treasury maintains accounts at commercial banks. What would be the consequences if the Treasury shifted funds form those banks to the Fed? What would be the appropriate response by the Fed to keep the moneys supply at the desirable level?
An investment of £100,000 is expected to produce an annual net cash flow of £20,130 for each of the next ten years. Calculate the NPV of the investment if the required rate of return is 9 percent and Draw a diagram illustrating a straddle, using c..
When you compound an initial lump sum annually instead of monthly at the same nominal interest rate over the same three year period, what will happen to the future value? Same question in other words: what happens to the future value if you compound ..
Orange Logistic is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. No new working capi..
If a firm is expected to have relatively high volatility in its future cash flows, would you advise the firm to pay no dividends, low dividends, high dividends, or will you advise the CFO to avoid using any equity financing at all? Please outline you..
Do empirical studies support or reject the notion that corporate insiders earn abnormal profits on their trades? What about outside investors who mimic their trades? What forms of market efficiency, if any, are supported by these studies?
The percent mark up on a video game is known to be 108% based on cost. If the seller said $35 for one, then what would be the corresponding percent mark up based on the sale price?
What is the maximum price you would pay for a common stock given that the risk free rate of return is 4%, the current dividend is $6.00, the return on the average stock in the market is 11%, the growth rate in dividends for the stock is 4% per year, ..
Tri-County Inc. pays an annual common stock dividend of $1.80 per share. The dividend has shown a constant growth rate over the past 5 years from $1.10 to its present level. This growth trend is expected to continue. The company's dividend payout rat..
You are thinking of building a new machine that will save your company $1,000 in the rst year. The machine will then begin to wear out so that the savings decline at a rate of 2% per year forever. What is the present value of the savings if the inter..
Define the three conditions that make up a perfect market, and then compare and contrast the effects of perfect markets and imperfect markets on value. Can they create or destroy value? Explain.
What can a financial institution often do for a surplus economic unit that it would have difficulty doing for itself if the surplus economic unit (SEU) were to deal directly with a deficit economic unit (DEU)?
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