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Suppose today is January 1, 2016; on January 1, 2006, XYZ industries issued a 30-year bond with a 5% coupon, paid semi-annually, and a $1,000 face value payable on January 1, 2036. The bond now sells for $975. Assume a 34% tax rate. a) Use this bond to determine the firm's after -tax cost of debt. Suppose the market risk premium is 3.5%, the T-bill rate is 1% and XYZ Industries has a beta equal to 1.35 b) Use the SML to compute the firm's cost of equity. c) Assume the debt/equity ratio for XYZ Ind. is .30 Using 4 decimals for the weights, calculate the WACC. Show procedure.
You are considering the purchase of a new car. You presently own a red 2013 Chevrolet Camaro 2door LS Coupe with 60,000miles. It has 3.6 liter V6 engine with manual 6 speed transmission. Based on the replacement value analysis, what is the trade-in v..
The payback period rule states that you should accept a project if the payback period is less than one year. The payback period considers the timing and amount of all of a project's cash flows. You are analyzing a short-term project with conventional..
Consider the following table for the total annual returns for a given period of time. Series Average return Standard Deviation Large-company stocks 11.1 % 19.9 % Small-company stocks 16.4 33.0 Long-term corporate bonds 6.2 8.4 Long-term government bo..
Whoopie Cushions, Inc. is analyzing the proposed purchase of a new machine for $550,000. The proposed machine has an estimated economic life of six years but will be treated as five-year MACRS property for depreciation purposes. Calculate the NPV of ..
Amy Parker a 22 year old Naval Architect is quick to admit that she does not plan to keep close tabs on her 401k. Amys contribution plus that of her employer, amounts to $2200 per year starting at the age of 23. Amy expects this amount will increase ..
Your firm has an average receipt size of $145. A bank has approached you concerning a lockbox service that will decrease your total collection time by one day. You typically receive 7,100 checks per day. The daily interest rate is 0.017 percent. The ..
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 3.0%. Expected return and Standa..
You have decided to invest 30 percent in X; 30 percent in Y; and 40 percent in Z. The probability of the state of the economy is Boom 25%; Normal 60%; and, Bust 15%. The rate of return for stock X is Boom .20; Normal .15; and, Bust .00. What is the p..
Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $12.40 per unit, and the variable labor cost is $6.80 per unit. What is the variable cost per unit? Suppose NSI incurs fixed costs of $760,000 during a year in wh..
Birds of a Feather has 10-year bonds outstanding that carry an annual coupon of 8 percent. The bonds mature in 7 years and are currently priced at 110 percent of face value. What is the firm's pretax cost of debt?
Suppose you borrow $50000 when financing a coffee shop which is valued at $75000. You expect to generate a cash flow so $84000 if demand is as expected. The cost of debt is 4%. What should the value of equity be?
Calculate the holding period return and calculate the required return based o the CAPM - calculate the coefficient of variation
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