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A firm is considering a new project which would be similar in terms of risk to its existing projects. The firm needs a discount rate for evaluation purposes. The firm has enough cash on hand to provide the necessary equity financing for the project. Also, the firm: 1) has 1,000,000 common shares outstanding, current price $11.25 per share, next year's dividend expected to be $1 per share, firm estimates dividends will grow at 5% per year after that, flotation costs for new shares would be $0.10 per share 2) has 150,000 preferred shares outstanding, current price is $9.50 per share, dividend is $0.95 per share, if new preferred are issued, they must be sold at 5% less than the current market price (to ensure they sell) and involve direct flotation costs of $0.25 per share 3) has a total of $10,000,000 (par value) in debt outstanding. The debt is in the form of bonds with 10 years left to maturity. They pay annual coupons at a coupon rate of 11.3%. Currently, the bonds sell at 106% of par value. Flotation costs for new bonds would equal 6% of par value. The firm's tax rate is 40%. What is the appropriate discount rate for the new project?
Last year, Holland Tulip Inc. paid $21.92 million in common stock dividends. The company has 16.17 million shares outstanding.
Compute the bond’s current yield. Compute the taxable equivalent yield. Compute the yield to call.
Johnson Industries finance its project with 40% debt and 60% common stock. What is the company’s weighted average cost of capital?
Jaime Corporation reported net income of $60 million for last year. Depreciation expense totaled $20 million and capital expenditures came to $5 million. Free cash flow is expected to grow at a rate of 6% for the foreseeable future. What is the curre..
In recent years, the Fed has shown a willingness to decrease existing reserve requirements. Suppose that the transaction deposits at bank and other financial institutions total $900 billion and that a reserve requirement of 10 percent applies only to..
Storico Co. just paid a dividend of $1.55 per share. The company will increase its dividend by 24 percent next year and will then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent divid..
Explain the difference between selling a forward contract for delivery at $100 in one year, buying a put option struck at $100 expiring in one year, and selling a call option struck at $100 expiring in one year.
A stock has returns of 5 percent, 18 percent, −19 percent, and 18 percent for the past 4 years. Based on this information, what is the 95 percent probability range for any one given year?
Complete the financial reporting for each period
Consider an investment of $500,000 at time zero for machinery and equipment to be depreciated using 8 year straight line depreciation starting in year 1 to year 8. Salvage value of the machinery and equipment is expected to be zero. The minimum DCFRO..
What does it mean to say that there is a bubble in the housing market? Briefly describe the effect that the bursting of the housing bubble had on the U.S. economy.
Ghost Rider Corporation has bonds on the market with 8 years to maturity, a YTM of 8.3 percent, and a current price of $944. What must the coupon rate be on the company’s bonds?
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