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Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $1 million of retained earnings with a cost of rs = 12%. New common stock in an amount up to $6 million would have a cost of re = 16%. Furthermore, Olsen can raise up to $3 million of debt at an interest rate of rd = 11% and an additional $4 million of debt at rd = 12%. The CFO estimates that a proposed expansion would require an investment of $6.4 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.
Collections on cash sales Collections on accounts receivables Total sources of cash Uses of cash:
Suppose you purchase a 30-year Treasury bond with a 7% annual coupon, initially trading at par. In 10 years time the bond's yield to maturity has risen to 8% (EAR). (Assume $100 face value bond) If you sell the bond now, what internal rate of return..
A task force of engineers and marketers was formed to analyse different designs.
An investment will pay you $91,000 in five years. Assume the appropriate discount rate is 6.25 percent compounded daily. What is the present value?
A $2,000 bond is redeemable at a coupon rate of 6.5% in 10 years. Would you purchase it at premium or discount price if you want it to yield 8%?
Given is the sequence of daily prices on the stock for the preceding month of June.- Estimate the historical volatility of the stock for use in the Black-Scholes-Merton model.
An economic downturn causes 5 percent of the local businesses to declare bankruptcy and default on their loans.
Geiger Corp. has a beta of 1.3 and the expected return based on the current stock price is 12%.
A mortgage banker had made loan commitments for $30 million in three months. How many contracts on Treasury bonds futures must the banker write or buy? Please provide formulas and all calculations.
The Morris Corporation has $600,000 of debt outstanding, and it pays an interest rate of 8% annually. Morris’s annual sales are $3 million, its average tax rate is 40%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ..
Roadrunner Bearing Company is an all-equity firm. what is the cost of equity capital for Roadrunner Bearing Company?
You own a bond with a 6.3 percent coupon rate and a yield to call of 7.2 percent. The bond currently sells for $1,105. If the bond is callable in five years, what is the call premium of the bond?
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