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Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 9% as long as it finances at its target capital structure, which calls for 35% debt and 65% common equity. Its last dividend (D0) was $2.40, its expected constant growth rate is 5%, and its common stock sells for $25. EEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 12%, and Project B's return is 10%. These two projects are equally risky and about as risky as the firm's existing assets.
What is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations.
%
What is the WACC? Round your answer to two decimal places. Do not round your intermediate calculations.
Sarah is the sole owner of Bluegrass Corporation. The basis and value of her stock investment in Bluegrass are approximately $100,000. In addition, she manages Bluegrass's operations on a full-time basis and pays herself an annual salary of $40,000.
A bond currently sells for $1,010, which gives it a yield to maturity of 4%. Suppose that if the yield increases by 30 basis points, the price of the bond falls to $980. What is the duration of this bond?
You own 1000 shares of MMM that you bought for $152. You also have written 10 call option contracts on MMM, at a premium of $1.5 and with a strike price of $159, maturing in 2 months. If at maturity of the option, the stock price is $165, what is you..
Do you have any concerns regarding the background of the new COO's background, or questions regarding his potential approach to maximizing inventory turnover?
Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 40,000 shares of stock. The debt and equity option would consist of 25,000 shares of stock plus $250,000 of debt wi..
Farmland Inc. produces 80,000 units of product A at a total cost of $2.4 million. Total fixed costs are $1 million. If the company increases production by 25% and uses a 40% markup the price per unit will be:
A firm has the following accounts and financial data for 2015: Sales Revenue of $3,500, Cost of Goods Sold of $1,750, Accounts Receivable of $650, Dividends of $22, Depreciation Expense of $180, Interest Expense of $156, Tax Rate of 40%, Total Cash O..
The water cooler has become a symbol in business life. Like any common gathering place in an office slightly removed from the cubicles and desks, the water cooler is a place to share information, both casual and vital, and to build networks with coll..
YIELD TO MATURITY Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. What is the yield to maturity at a current market price of (1) $865 and (2) $1,166? ..
Which measure of risk is most relevant for an investor holding only one investment? Which measure is most relevant for an investor holding the stock as part of a well diversified portfolio?
Based on your knowledge of present value concepts, why would insurers be willing to issue insurance to MGM under these conditions?
Stephen Fredrick, a pilot for Simmons Airlines Corp., criticized the safety of the aircraft that Simmons used on many of its flights and warned the airline about possible safety problems. SAC took no action. After one of the planes crashed, Fredrick ..
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