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Find the WACC for a firm with the following characteristics. A few years ago the firm issued $4,000,000 debt with a coupon rate of 4%; currently that debt is trading with a yield to maturity of 5.5% and a value of $3,500,000. The firm has 1,000,000 common shares outstanding at a value of $6/share. You look up the asset beta for firms in the same industry (SIC) code and determine that value is 1.15. The firm plans on keeping its D/E ratio constant (at the current level) going forward and the tax rate is expected to be 35%. The beta of the firm’s debt is estimated as 0.10, the risk free rate is 3% and the market return is 9.8%.
Most sources report alphas and other metrics relative to a standard benchmark, such as the S&P 500. When might this method be an inappropriate comparison?
lycan inc has 7.8 percent coupon bonds on the market that have 7 years left to maturity. the bonds make annual payments. if the YTM on these bonds is 9.8 percent, what is the current bond price?
Maybepay Life Insurance Co. is selling a perpetual annuity contract that pays $3,000 monthly. The contract currently sells for $326,000. What is the monthly return on this investment vehicle? What is the APR?
You have developed the following data for Asset “A” and the Market. Assume that the four states of nature include all possible states: State Return on Asset A Return on the Market 1 -15 -5 2 5 0 3 20 15 4 30 20 The rate on T-Bills is 2 percent. Given..
Which one of the following indicates a project has a required return that exceeds its rate of return?
The cost of raising capital through retained earnings is _____________ (a. less than, b. greater than) the cost of raising capital through issuing new common stock. The current risk-free rate of return is 3.8%. The market risk premium is 6.1%. D'Amic..
Phillips Industries runs a small manufacturing operation. For this fiscal year, it expects real net cash flows of $190,000. Phillips is an ongoing operation, but it expects competitive pressures to erode its real net cash flows at 4% per year in perp..
The Erley Equipment Company purchased a machine 5 years ago at a cost of $80,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $8,000 per year. What are the increment..
KCCO, Inc., has current assets of $5,200, net fixed assets of $25,200, current liabilities of $4,250, and long-term debt of $9,400. What is the value of the shareholders’ equity account for this firm?
A stock sells for $20 per share and you purchase 100 shares. If the value of stock doubles to $40 in 1 year what would be the total return? What would be the total return if the required margin where:
Using the initial simulation results, determine the estimated total annual inventory cost using the cost parameters provided in the example. Break out between order cost, holding cost, and stockout cost.
Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal instalments at the end of each of the next 5 years. How much would you still owe at the end of the first year, after you have made the first payment?
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