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Digital Equipment Corporation (DEC) is planning to expand into the search business by acquiring Fetch Inc. Unfortunately, the valuation of Fetch is difficult because Fetch is not publicly traded. DEC's target debt to equity ratio is 40% and its pre-tax borrowing rate is 12%. DEC has identified Wohoo Inc. a publicly traded search firm for its pure play computations. Wohoo uses a debt to equity ratio of 50%. Wohoo's equity beta is 2, and its pre-tax cost of borrowing is 15%. The risk-free rate is 7% and the expected return on the market portfolio is 15%. Both firms face a corporate tax rate of 35%. Assume zero debt beta. Cost of capital that DEC should use to value Fetch is:
Chisel Corporation has 3 million shares outstanding at a price per share of $3.25. If the debt-to-equity ratio is 1.7 and total book value of debt equals $12,400,000, what is the market-to-book ratio for Chisel Corporation?
The yield to maturity on this bond when it was issued was 6.0%. What was the price of this bond when it was issued?
Importers/Exporters Inc. wants to underwrite a stock issue for the purchase of $21 million of new equipment. Management estimates the issue will cost the firm $320,000 for accounting, legal, and other costs. The underwriting spread is 7.5% and the is..
Your firm needs to raise $10.6 million to finance its capital expenditures for the coming year. The firm earned 4.8 million last year and will pay out half this amount in dividends. If the firm's CFO wants to finance new investments using no more tha..
Dizzy Corporation’s 10-year semi annual bond bearing a coupon rate of 12% is currently selling for $950. Given this information, which of the following is the correct valuation equation for this bond? Note: PVIFA(r,t) = [{1-1/(1+r)t}/r] and PVIF(r,t)..
You are involved in the planning process for a firm that is expected to have a large increase in sales next year. Which type of firm would benefit the most from that sales increase: a firm with low fixed costs and high variable costs or a firm with h..
Firm A and Firm B have debt total asset ratios of 27 percent and 17 percent and returns on total assets of 8 percent and 12 percent, respectively. What is the return on equity for Firm A and Firm B? (Do not round intermediate calculations. Round your..
Hastings Entertainment has a beta of 0.64. If the market return is expected to be 13.80 percent and the risk-free rate is 7.80 percent, what is Hastings’ required return? (Round your answer to 2 decimal places.)
Its annual sales are $5.13 million, its average tax rate is 30%, and its net profit margin on sales is 5%. What is its TIE ratio?- show the calculation for this problem?
Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 6%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 14%. According to the capital asset prici..
On May 31, the APCO bonds were priced at 82 3/4. The September futures price was 76 14/32. Determine the outcome of the hedge.
All of the statements regarding the taxation of insurance policies are correct, except:
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