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1. Given the following information for Watson Power Co., find the WACC. Assume the company’s tax rate is 35 percent.
Debt: 10,000 6.4 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108 percent of par; the bonds make semiannual payments.
Common stock: 495,000 shares outstanding, selling for $63 per share; the beta is 1.15.
Preferred stock: 35,000 shares of 3.5 percent preferred stock outstanding, currently selling for $72 per share. Market: 7 percent market risk premium and 3.2 percent risk-free rate.
2. A firm has an ROE of 25% and a market-to-book ratio of 2.70. Its P/E ratio is _________.
9.26
10.80
67.50
22.30
Suppose that the Johnson family has the option of purchasing two bonds.
Compute the market values of the two firms and the implied present value of growth opportunities for firm B.
The company maintains a constant 36 percent dividend payout ratio. No external equity financing is possible. What is the internal growth rate?
The management of Company GV believes that the firm’s current capital structure is optimal and plans to maintain it.
Calculate the maximum investment funds available without issuing new equity and the increase in debt financing required.
Company A, a low rated rm, desires a xed rate, long term loan. Company A currently has access to oating-rate funds at a margin of 1.2% over LIBOR. Its direct borrowing cost is 13% in the fixed rate bond market. What's the total cost savings can be re..
If you save a constant percentage of your salary, what percentage of your salary must you save each year?
Assuming a customer pays the invoice at the end of the costly trade credit period, what is the annualized cost of trade credit?
If the time value of the money is .10 how much do you have to save per year for 20 years to have $50,000 per year for perpetuity?
how much would you pay for the stock? Assume that the next owner also expects to earn 14% on his or her investment.
Calculate the present value of growth opportunities (PVGO). Find the price at which ABC stock should sell (intrinsic value V0).
The McGraw Distributors has a cost of equity of 14.4 percent and a pre-tax cost of debt of 8.6 percent. The firm's target weighted average cost of capital is 11.6 percent and its tax rate is 37.7 percent. What is the firm's target debt-equity ratio?
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