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A company has a WACC1=12.5% for funding up to $4 million when retained earnings are used. They also have a WACC2=13.7% for funding above $4 million when new equity is raised. If they have the following independent investment opportunities, which projects should the company include in their budget? What is the company’s optimal capital budget?
Project A: Cost of $2 million; IRR 20%.
Project B: Cost of $3 million; IRR 14%
Project C: Cost of $4 million; IRR 13%
You purchase a 6-month call option on euro for a premium of $0.05 per unit, with an exercise price of $1.16; the option will not be exercised until the expiration date, if at all. You borrowed the money for the premium at 8% continuous compounding ra..
Navel County Choppers Inc. is experiencing rapid growth. The company expects dividends to grow at 15 percent per year for the next 8 years before leveling off at 6 percent into perpetuity. The required return on the company’s stock is 12 percent. If ..
A bond pays 1.5% at the end of every quarter over 5 years. What would be the corresponding ‘stated annual rate’ and the corresponding ‘effective annual rate’?
Suppose that Neilson’s Restaurants has a liability exposure with expected loss payment equal to $3 million this year, $3 million next year, and $1 million in two years. What is the present value of the expected tax shield arising from Neilson’s liabi..
Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $2.00 coming 3 years from toda..
Dream car toyota camry costs $27500, dream job political/community organizer makes $72,000 per year. What is 10% of your dream car's value (this is the down payment for your car) and what is 5% of your monthly income? What is the amount of the loan f..
Calculate "r" the required rate of return for each of the following. Assume beta is 1.3 for this and the next two problems, the risk-free rate is 6.5%, and market risk is 10.5%. Now assume the risk-free rate increases to 8% because inflation is expec..
Elmer’s Glues are produced in upstate New York and sold throughout the country. Shipment is either direct from the factory or via regional warehouses, including one in the Los Angeles area. Inventory transfers to the West Coast move by truck. The pe..
Using the information, prepare a budget for May. Consider that production wil increase to 30,000 jars of salsa, reflecting an anticipated sales increase related to a new marketing campaign.
You want to buy a new sports coupe for $52,250, and the finance office at the dealership has quoted you a 8.0 percent APR loan for 60 months to buy the car. Your monthly payment will be $ ___ and the effective annual rate on this loan is ___ percent.
Ajax Ltd reported Net Income of $435m in 2013, after providing for $186m in tax at a rate of 30%. Interest Expense was $56m and Depreciation was $32m. Calculate the free cash flow generated by Ajax Ltd in 2013.
Halliford Corporation expects to have earnings this coming year of $2.63 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 49% of its earnings. It will then retain 23% ..
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