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Question 1. Assume the market value of Maxy Corp's ordinary equity, preferred equity and debt are $7 billion, 54 billion and $10 billion respectively. The firm has a beta of 1.4, the market risk premium is 6% and the risk free rate of interest is 4%. The firm's preferred stock pays a dividend of $3 each year and trades at a current price of $25 per share. The firms debt trades with a current yield to maturity of 8.5%. The firm's marginal tax rate is 35%,
i. What is the firm's cost of ordinary equity?
ii. What is the firm's weighted average cost of capital?
Question 2. Maxy Corp. considers a project in a new line of business which has no debt and an equity cost of capital of 14%. Suppose that the firm decides to increase the project's leverage and to maintain the project's market debt-to-value ratio of 1/2. The project's debt cost of capital is 8% and its marginal tax rate is 21%. Assume that the project's unlevered cost of capital remains constant, i.e. 14%.
i. What will the project's effective after-tax WACC be with the addition of leverage?
il. What does the value of the project increase by for every $1 in new permanent debt that the firm issues to finance the project? Explain.
Marketing research over the internet has increased significantly in the past decade. Outline and then discuss the strengths and weaknesses of marketing research conducted online with respect for a foreign or domestic airline company of your choice.
1. Given a choice of holding a managerial position in a big company or being an owner of a small business, which will you choose? Why?
You are buying a house for $300,000. The terms of the mortgage include a 30-year loan (fixed rate) and annual interest rate of 4.5%, compounded monthly, and a 20% cash down payment is required. What are your monthly payments on this loan?
Consider a nation that produces food (Qf) and clothing (Qc) according to the following production functions: Qc=sqrt (Lc) Qf=sqrt (Lf) where, Lc and Lf are the number of hours in production of clothing and food respectively. Determine the autarky equ..
What percentage of a tax would consumers pay in the following situations? a. Price elasticity of demand is .5 and price elasticity of supply is 1. b. Price elasticity of demand is .5 and price elasticity of supply is .5. c. Price elasticity of demand..
If each economy specialized in its comparative advantage, what range of prices would bacon trade at in terms of eggs.
Develop a KM strategy proposal. Your KM strategy proposal should include the following information:
Assume that a cost function has been derived empirically for a large firm: what is the economic significance of the first term of the expression, 100? what is the marginal cost of production in this cast?
Suppose that there are three states of the world, a, b, and c. The probabilities of the three states are p1 = 0.25, p2 = 0.5, and p3 = 0.25.
If the FED decides to continue the process of raising interest rates, what is the likely response of firms and households to the increased cost of borrowing?
What do you think it resulted in less standing in line by pregnant women. Do you suppose and women became pregnant in prder to cut into the long lines.
What is regionalism? Use European Union as an example to illustrate the major steps toward regional integration. What major features can you identify for regional integration in Europe, North America and East Asia? What are the dynamics for regional ..
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