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Problem 1
Given that a company's risk-free rate is 1%, the S&P 500 average return is 6%, and a firm has a beta of 0.8, compute the Weighted Average Cost of Capital for the firm given that the firm can borrow from the bank at (on average) an interest rate of 4%. The balance sheet shows that there is $300 million of shareholder equity, and $100 million of long-term debt.
Problem 2
The same company as the firm in Problem 1 (i.e. assume the WACC that you have computed above) is now contemplating the following project that will generate the following cash flows:
Year 1 2 3 4 5
Cash flow 12 12 4 4 7
The initial investment is 33 (all number are $ millions).
Should the firm proceed with the investment?
Does it make a difference if there is uncertainty regarding the cash flows: there is only an 85% chance that the cash will be realized. Assume that the cash flows are reduced by 15% accordingly.
Compute the cash flow amounts for Morgan trading ltd. for the year - Cash receipts from customers and cash paid to suppliers and employees
below are the financial ratios of kangaroo ltd for the years 2011-2012 and the industry average for the year 2012.
1. a very small countrys gross domestic product is 12 million.a. if government expenditures amount to 7.5 million and
You used Dell as a representative company to estimate the cost of capital for GCI. What are some of the potential problems with this approach in this situation? What improvements might you suggest?
Calculate Byfields cost of capital. Which projects should Byfield accept and briefly explain why knowing the cost of capital is important for a company.
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craig company has a market value of 100m consisting of 1m shares selling for 50 per share and 50m of 10 perpetual bonds
During the year Bills Receivable received were $30,000; $6,000 of which are endo$ed in favour of creditor, of the later a bill for $ 1,200 was dishonoured.
Finance permanent net working capital with equity and temporary net working capital with a short-term loan at 12% and calculate the cost of each option. Which would you choose? Why?
Miller Manufacturing, corporation manufactures electronic components for television circuitry. Variable costs comprise 67 percent of a product's selling value.
Find the Weighted Average Cost of Capital and if Google wanted to lower their WACC, what could they do
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