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Suppose you are hired as a consultant for Tailways, Inc., just after a recapitalization that increased the firm’s debt-to-assets ratio to 80 percent. The firm has the opportunity to take on a risk-free project yielding 10 percent, which you must analyze. You note that the risk-free rate is 8 percent and apply what you learned in class about taking positive net present value projects; that is, accept those projects that generate expected returns that exceed the appropriate riskadjusted discount rate of the project. You recommend that Tailways take the project.
Unfortunately, your client is not impressed with your recommendation. Because Tailways is highly leveraged and is in risk of default, its borrowing rate is 4 percent greater than the riskfree rate. After reviewing your recommendation, the company CEO has asked you to explain how this “positive net present value project” can make him money when he is forced to borrow at 12 percent to fund a project yielding 10 percent. You wonder how you bungled an assignment as simple as evaluating a risk-free project. What have you done wrong?
The company's stock has a beta of 0.95, the risk-free rate is 3.5%, and the market risk premium is 4%. What is your estimate of the stock's current price?
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What is the WACC for the last dollar raised to complete the expansion?
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How the companies' EOC policies and practices create advantages or disadvantages for their sustainability and growth?
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Calculate the EOQ. - What is the difference in inventory costs between the EOQ and the current order quantity of 10,000 units?
The next dividend payment by Hot Wings, Inc., will be $4.25 per share. The dividends are anticipated to maintain a 2 percent growth rate forever. Required: If the stock currently sells for $51 per share, what is the required return? Format to 4 decim..
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Many countries take major terminology such as ICD and customize it to suit their local needs. Discuss the costs and benefits of this approach from an individual country'
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