What is the cost of equity and value of the equity

Assignment Help Financial Management

Reference no: EM131308821

Suppose you borrow $200500 when financing a coffee shop which is valued at $275000. You expect to generate a cash flow of $550000 at the end of the year. The cost of debt is 8%.

a) What is the cost of equity?

b) What should the value of the equity be?

Reference no: EM131308821

Questions Cloud

Foundation with an annual cash donation : The Harsper Foundation was just notified that an anonymous benefactor gifted the Foundation with an annual cash donation. The Foundation will receive an initial amount of $25597, which will decrease by 3% per year. The Foundation will receive the cas..

Assume the exact method of accumulation is in effect : Here is a question about mathematics of finance : Barbara makes a sequence of 28 semiannual deposits of the form x, 2x,x,2x,..... into an account paying a rate of 6.8 percent compounded annually. If the account balance 6 years after the last deposit ..

Shareholders of financing project out of retained earnings : Axon Industries needs to raise $2500000 USDs for a new investment project. If the firm issues 1-year debt, it may have to pay an interest rate of 6%, although Axon's managers believe that 4% would be a fair rate given the level of risk. What is the ..

The interest tax shield increase : ECB borrows $2000000 USDs by issuing 4-year bonds. ECB's cost of debt is 6%, so it will need to pay $120000 USDs in interest each year for the next 4 years, and then repay the principal $2000000 USD in year 4. ECB's marginal tax rate will remain 35 t..

What is the cost of equity and value of the equity : Suppose you borrow $200500 when financing a coffee shop which is valued at $275000. You expect to generate a cash flow of $550000 at the end of the year. The cost of debt is 8%. What is the cost of equity? What should the value of the equity be?

Investigating possible ways to trim total production costs : Hampton Company: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the cans instead of purchasing them. Would you recommend the acceptance of this propos..

What is the required rate of return : Sanders Jeans stock currently sells for $15.00 per share. It just paid a dividend of $1.00 per share. The dividend is expected to grow at a constant rate of 4% per year. What stock price is expected a year from now? What is the required rate of retur..

Dividend is expected is expected to grow at constant rate : The Blitz Corporation is expected to pay a $1.50 per share dividend at the end of the year. The dividend is expected is expected to grow at a constant rate of 6% per year. The required rate of return on the stock is 11%. What is the current value per..

Undertake the investment in shingle production : The CEO for Fincher Mfg., a producer of building materials located near Atoka, Oklahoma, is evaluating a proposal to produce asphalt shingles at the firm’s idle manufacturing facility on the North side of Atoka. Although the vacant facility could be ..

User Account

All Pages