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Kobe & Jason Inc. is financed entirely with 2,000,000 shares of common stock priced at $20 a share. The firm pays 100% of its earnings as dividends. EBIT is expected to be $5,000,000 for the foreseeable future. Ignore taxes (i.e., assume that the firm is operating in a perfect capital market with no taxes) and assume no growth.
a) What is the total market value of the firm?
b) What is the cost of equity?
c) The board of directors has decided to retire $10,000,000 common stock, replacing it with long-term debt that carries 9% annual interest.
(1) What will be the cost of equity after refinancing?
(2) What will be the weighted average cost of capital after refinancing?
Fama’s Llamas has a weighted average cost of capital of 10.1 percent. The company’s cost of equity is 13 percent, and its pretax cost of debt is 8.1 percent. The tax rate is 40 percent. What is the company’s target debt−equity ratio?
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What is the equivalent AW of a two-year contract that pays $5,000 at the beginning of the ?rst month and increases by $500 for each month thereafter? i = 12% compounded monthly?
Assume stocks A and B have had identical stock prices every day for the past three years. Stock A pays a dividend but Stock B does not. Which one of these statements applies to these stocks for the last three years?
although it may not always be an even split between dividends and repurchases.
Assuming you knew your required rate of return, how would you calculate a value for this stock?
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In 1998, Long-Term Capital Management (LTCM), a prestigious hedge fund, made highly leveraged bets on the spread between U.S. Treasuries and corporate bonds.
How you estimated the percentage of capital that comes from debt, and common equity - find cost of debt
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