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Management of the Company needs to determine its cost of capital in order to evaluate some large capital purchases. The company's bonds have a yield to maturity of 6%, last dividend paid on common stock was $1.50 per share, current stock price is $30/share, and constant growth of 5% is expected on dividends and earnings. The company's capital structure is 30% debt, 70% equity. There is no preferred stock and the marginal tax rate is 35%. SHOW ALL WORK FOR FULL CREDIT. a) What is the after-tax cost of debt? b) What is the cost of equity? c) What is the company's cost of capital (WACC)?
Badlands, Inc. reports the following information for the year ended December 31: Units sold 640 units Sales price $120 per unit Direct materials $28 per unit Direct labor $9 per unit Variable manufacturing overhead $15 per unit. The operating income ..
A 25-year maturity bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 9.30%. What is the bond’s yield to maturity if the bond is selling for $1,030? What is the bond’s yield to maturity if the bond is selling for $1,..
A perpetuity differs from an annuity because: A. perpetuity payments vary with the rate of inflation. B. perpetuity payments vary with the market rate of interest. C. perpetuity payments are variable while annuity payments are constant. D. perpetuity..
Examine if it is possible for a company that has negative net income and negative operating cash flow to end the year with an increase in cash and an increase in stock price. Explain your answer in as much detail as necessary.
Mr. Sampson will receive $6,500 a year for the next 14 years from his trust. If an 8 percent interest rate is appropriate: What is the current value of the future payments? What is the current value, if they are received at the beginning of each year..
Briefly describe the nature and purpose of the audit review process. Identify any breakdowns that occurred in the audit review process during the 1989 Star audit?
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: What is the standard deviation of the portfolio?
Demarius owns investment A and 1 share of stock B. The total value of his holdings is 2,619.1 dollars. Investment A is expected to pay annual cash flows to Demarius of 350 dollars per year with the first annual cash flow expected later today and the ..
The increased use of credit cards has led to:
Ernie Manufacturing has projected sales of $155 million next year. Costs are expected to be $100 million and net investment is expected to be $17.5 million. Each of these values is expected to grow at 14 percent the following year, with the growth ra..
Compute the PI statistic for Project Q if the appropriate cost of capital is 11 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Project Q Time: 0 1 2 3 4 Cash flow –$11,400 $3,550 $4,380 $1,720 $2,35..
NI= RI+IP+RP+LP+DP What does each variable represent and why does it affect nominal interest? If the risk-free rate of interest is 3%, and for a 5 year period, the inflation premium is to be 5%, the interest rate risk premium is .1% annually (Except ..
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