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Miller Industrial Tools has two separate divisions. Division X produces custom work on a pre-paid basis only for long-term customers and therefore, is subject to less risk than division Y. The company has assigned a discount rate equal to the firm's WACC minus 1.5 percent to division X and a rate equal to the firm's WACC plus 2 percent to division Y. The company has a debt-equity ratio of .40 and a tax rate of 32 percent. The cost of equity is 11.4 percent and the aftertax cost of debt is 4.8 percent. Presently, each division is considering a new project. Division Y's project provides a 10.2 percent rate of return and division X's project provides a 6.4 percent return. Which projects, if any, should the company accept?
The Graber Corporation’s common stock has a beta of 1.2. If the risk-free rate is 4.3 percent and the expected return on the market is 13 percent, what is the company’s cost of equity capital?
Fiberia Accessories, a clothing retailer, is planning to introduce a new line of sweaters as part of the winter collection for $65 with an inventory of 1500. The main selling season is 60 days between November and December.
Cheeseburger and Taco Company purchases 7,251 boxes of cheese each year. What is the average inventory held during the year?
Piedmont Enterprises currently pays a dividend (D0) of $1 per share. This dividend is expected to grow at a 20 percent per year rate for the next 2 years, after which it is expected to grow at 6 percent per year for the foreseeable future. If you req..
Put together a memo to your Board of Directors, as the Company's CFO, which describes some of the risks associated with your Board's plans to raise capital by issuing bonds to the public. Be sure to include the effects of inflation as well as provide..
Present an example of a business situation that you believe would lend itself to the use of a quantitative business model. Clearly explain how the model could be used in this situation.
In 2008 a firm has 2,550,000 in long-term debt, 760,000 in common stock and an addition to surpuls of 6,300,000. In 2009 the firm has long-term debt of 3,850,000, capital stock of 905,000 and an additional paid in surplus of 8,500,000, dividends paid..
All principal will be repaid in one balloon payment at the end of the fifth year. What is the adjusted present value (APV) of the project?
Sandia, Inc. wants to acquire a $360,000 computer controlled printing press. if owned the press would be depreciated on a straight-line basis over 10 years to a book salvage of $0. The actual cash salvage value is expected to be $25,000 at the end of..
The interest on some municipal bonds is tax free, in contrast to the interest on corporate bonds. If the current annual interest rates on otherwise similar (i.e., maturity, credit risk, liquidity) municipal and corporate bonds are 1.48% and 1.80%, re..
To what extent are the proceeds of a life insurance policy exempt from the claims of creditors of the beneficiary? On what basis can such exemptions be justified?
Your firm is considering developing an apartment complex. The firm owns land that could be used for the project; it was bought last year for $500,000. Real estate has gone up sharply in the last year: the land could be sold today for $625,000. Fixed ..
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