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You would like to estimate the weighted average cost of capital for a new airline business. Based on its industry asset ?beta, you have already estimated an unlevered cost of capital for the firm of 8%. ?However, the new business will be 23% debt?financed, and you anticipate its debt cost of capital will be 5%. If its corporate tax rate is 40%, what is your estimate of its? WACC?
1. The equity cost of capital is %? (Round to one decimal place)
2. The weighted average cost of capital is %? (Round to one decimal place)
Assume the rate on the issuance of $100m of 100-year bonds is 7.5%; the annual debt service payment would be $7.505m. How high would the interest rate have to be on 30-year bonds for the annual debt service payment to be the same for both financings?
How an individual stock return varies or correlates with the market return. How much nonsystematic risk a stock has. How much diversifiable risk a stock has. How an individual stock return varies with another stock’s return.
Exchange Rate Effects on Borrowing. Explain how the appreciation of the Japanese yen against the U.S. dollar would affect the return to a U.S. firm that borrowed Japanese yen and used the proceeds for a U.S. project.
Suppose that the 9-month LIBOR interest rate is 8% per annum and the 6-month LIBOR interest rate is 7.5% per annum. Estimate the 3-month Eurodollar futures price quote for a contract maturing in 6 months.
Suppose BETA (a multinational manufacturer and marketer of consumer and professional products) can lease a new computer data processing system for $975,000 per year for five years under an operating lease. Alternatively, it can purchase the system fo..
Scanlin, Inc., is considering a project that will result in initial after tax cash savings of $1.70 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. What is the maximum initial cost the c..
The Graber Corporation’s common stock has a beta of 1.3. If the risk-free rate is 5.3 percent and the expected return on the market is 11 percent, what is the company’s cost of equity capital?
XYZ would like to purchase a new machine. It will cost $50,000. Shipping and installation charges for the equipment are expected to total $5,000.
What was Upper Crust's cash flow from operations for 2008?
How should the extra cash reserve be invested? Explain. Describe all transactions the treasurer needs to take.
Gael Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 185,000 shares of stock outstanding. What is the value of the firm under each of the two pr..
Javits & Sons’common stock currently trades at $30.00 a share. It is expected to pay an annual dividend of $3.00 a share at the end of the year D1 $3.00 , and the constant growth rate is 5% a year. What is the company’s cost of common equity if all o..
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