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Bruce & Co. expects its EBIT to be $80,000 every year forever. The company can borrow at 4 percent. The company currently has no debt, its cost of equity is 8 percent, and the tax rate is 35 percent. The company borrows $122,000 and uses the proceeds to repurchase shares.
What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity _____ %
What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC ____ %
You have $250,000 invested in bond A which has a modified duration of 3 and $175,000 invested in bond B which has a modified duration of 12. If interest rates rise by 50 basis points, your portfolio would gain/lose approximately how much money?
What effective annual rate of return (EAR) would Rayne need to earn if she deposits $1,000 per month into an account beginig one month from today in order to have a total of $ 1,000,000 in 30 years ?
Green Manufacturing, Inc., plans to announce that it will issue $2.01 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 7 percent. What is the expected return on Green’s equity..
Your friend Danni is working in the CFO’s office for MacroHard Inc. Danni’s boss uses the CAPM to estimate the firm’s cost of capital, but Danni remembers from FINA 4210 the Fama-Fench 3 factor model. Outline what the Fama-French 3 factor model is.
You own a bond with the following features: 7 years to maturity, face value of $1000, coupon rate of 3% (annual coupons) and yield to maturity of 7.8%. If you expect the yield to maturity to remain at 7.8%, what do you expect the price of the bond to..
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $60,000.
The Under Armour case reviews a number of areas where portfolio analysis could be useful. Create an analysis that adds to strategy formulation for them. What are the weaknesses with the areas you chose? Use research about the company today as well as..
Assume that your organization's chief financial officer (CFO) has just completed a presentation to the board of trustees concerning the analysis of a proposed ambulatory surgery center costing $2 million. The project is financially unacceptable becau..
Suppose that John Doe wants to borrow $250,000 to buy a home but has a poor credit history. A bank seeking to earn a risk-free return on its loan requires the return equal to 3%. How would you structure the loan for John? Suppose that the loan is und..
A 6.15 percent coupon bond with fifteen years left to maturity is priced to offer a 7.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollar..
You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of The Ultimate to be $400 and sales volume to be 1,000 units in year 1, 1,250 units in year 2, and 1,32..
Berea Resources is planning a $75 million capital expenditure program for the coming year.- How much external financing is required by Berea for the coming year?
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