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Rex Inc. has equity with a market value of $25 million and debt with a market value of $8 million.
Treasury bills that mature in one year yield 6 percent per year, and the expected return on the market portfolio is 13 percent. The beta of Rex's equity is 1.25. The firm pays no taxes.
a. What is the firm's debt-equity ratio?
b. What is the firm's weighted average cost of capital?
c. What is the cost of capital for an otherwise identical all-equity firm?
If Stephenson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain.
Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 6%, and the market risk premium is 7%. Harrison estimates that if it acquires Van Buren, the year-end dividend will remain at $1.87 a..
Calculate the standard deviation of the following returns.
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You need a 35-year, fixed-rate mortgage to buy a new home for $245,000. Your mortgage bank will lend you the money at an APR of 5.4 percent for this 420-month loan. However, you can afford monthly payments of only $850, so you offer to pay off any re..
Identify the two models that can be used to estimate a stock’s intrinsic value: the discounted dividend model and the corporate valuation model.
When a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio.
Calculate Al Jazeera’s expected return and risk.
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what is the option worth today if the one year risk free rate is 5%. Use the binomial option pricing model to find this value.
Which of the following formulas correctly describes the cost of equity capital as computed using the dividend growth model?
What are the 3 variables that can constraint the payments of dividends?
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