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The president of Dronavation, Inc. has hired you to determine the firm's cost of debt and cost of equity capital. The stock is currently selling for $40 a share and the dividend per share is expected to be around $2. The company has total liabilities of $16 million and interest expense for the year of $2 million.
Discuss
The president makes the statement that it will cost $2 per share to use the stockholders' money, so the cost of equity is equal to 5 percent (2/40). Is this correct? How do you respond?
The president says to you that if the company owes $16 million and has only $2 million in interest, the cost of debt is 12.5 percent ($2 million / $16 million). Is this conclusion correct? Explain.
Based on his calculations, the president recommends the company increase its use of equity financing, because debt costs 12.5 percent, but equity only costs 5 percent. How do you respond?
How long would her financial planner recommend that she live in the house to break even using Option 2 presuming she is not financing the points?
A company manufactures a product using two machine cells. Each cell has a design capacity of 250 units per day and an effective capacity of 230 units per day. At present, actual output averages 200 units per cell, but the manager estimates that produ..
TJ Industries has revenue of $400,000 and expenses of $250,000. - The depreciation cost is $80,000 and marginal tax rate is 35%.- Calculate cash flow from operation.
Discuss at least three financial ratios that are used to analyze financial position of healthcare organization. Explain the concept of time and value of money.
Puppypaws Inc. is publicly-traded company. The money raised from the sale of debt will be used to repurchase some of the firm’s outstanding shares.
A bank like African Bank is faced with constant changes in the environment they operate in. When designing a corporate strategy for African Bank identifies and describes four (4) such changes that should be taken into account. Use examples in your an..
What is the present value of a perpetuity making quarterly payments in arrears in the amount of $9,650 per quarter,
How does this compare with the stock's actual expected return?
What are the ethical considerations that Sky Fly's managers should observe when deciding between the two projects?
If the tax rate is 30%, and if the required rate of return is 7%, what is the project's net present value?
Calculate the times interest earned ratio. What is the earning per share for the year 2015?
Both bonds have a coupon rate of 10.22 percent. What is the yield-to-maturity for bond A?
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