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Total market value of a company $60million. During the year, company plans to invest $30mil in new projects. based on the firm's present market value capital structure (Debt $30mil, Common Equity $30mil) which is considered optimal. No short term debt. New bonds will have 6% coupon rate, sold at par. Common stock is currently selling at $30/share. Stockholder's required rate of return is 12% consisting of a dividend yield of 4% and and expected constant growth rate of 8%; next expected div is $1.20 so $1.20/$30=4%. Marginal Corporate Tax rate 30%.
In order to maintain present capital structure, how much of the new investment must be financed by common equity.
Answer in dollars. And assuming there is sufficient cash flow such that target captil structure can be maintained without issuing additional shares of equity, what is its WACC, rounded to two decimal places.
Computation of expected rate of return and Beta and Demonstrate to your colleagues how you would calculate the expected rate of return also called r-hat
The prices for the Guns and Hoses Company for the first quarter of 2005 are given below. Calculate the holding period return for February.
Douglas Keel, a financial analyst for Orange Industries, wishes to determine the rate of return for two similar-risk investments, X and Y. Douglas's research indicates that immediate last returns will serve as reasonable estimates of future returns.
Explain the concepts of present value and discuss your interpretation of their value as assessment tools for accountant or operator (include an example).
Why do exchange rate changes bring feast or famine for Volvo, but neither feast nor famine for Ford? Consider the distribution and concentration of their production facilities worldwide.
What is Comprehensive Income and give a Journal Entry example to record comprehensive Income? How is it reported?
Determine the meaning of the following sentence: Amortization affects the amount of interest expense and explain how does amortization of premium affect the amount of interest expense?
An FI makes a loan commitment of $2,500,000 with an up-front fee of fifty basis points and a back-end fees of 25 basis points on the unused portion of loan. The takedown on the loan is 50 percent.
If a company has an average tax rate of 40%, the approximate yearly, after-tax cost of debt for a 10-year, 8%, $1,000 par value bond selling at $1,150 is
Sell the welding machine for $200,000 and close the tricycle business; or Sell the tricycle business for an after-tax price of five times the 2007 after-tax profit
Discuss how can the measures of interest rate risk be used to predict future earnings performance.
Suppose the total expense for your current year in college equals $20,000. Approximately how much would your parents have needed to invest 21 years ago in an account paying 8 percent compounded annually to cover this amount?
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