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Question
Determinants of Interest Rate for Individual Securities You are considering an investment in 30-year bonds issued by a corporation. The bonds have no special covenants.
The Wall Street Journal reports that 1-year T-bills are currently earning 3.50 percent. Your broker has determined the following information about economic activity and the corporation bonds:
Real interest rate = 2.50%
Default risk premium = 1.75%
Liquidity risk premium = .70%
Maturity risk premium = 1.50%
What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?
New capital expenditures are expected to equal depreciation and equal $10 million per year, What is Acort's equity cost of capital?
Blue Water Systems is analyzing a project with the following cash flows. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not?
A stock is expected to pay a dividend of $1.75 the end of the year (that is, D1 = $1.75), and it should continue to grow at a constant rate of 3% a year. If its required return is 13%, what is the stock's expected price 5 years from today? Round your..
KEI's expected net income this year is $34,285.72; its established dividend payout ratio is 40%. Determine cost of each capital component. Calculate the WACC.
Northern Boat Mfg., Inc. has a weighted average cost of capital (WACC) of 16.8 percent, given the firm’s current boat-making operations. Home Builders, Inc. has a WACC of 14.4 percent, given that the firm builds new, single-family homes. Both firms a..
Calculate a firm's required rates of return for both of its equity components: Its common stock sells for $50.00 per share and will pay a $6.00 dividend which is expected to grow at a constant 5% rate. Its preferred stock sells for $22.50 per share a..
Find the net present value for the following series of future cash flows, assuming the company's cost of capital is 6.5%. The initial outlay is $450,200.
the company has come up with the following estimates of the initial capital requirements and NPVs for the projects
What rate of return would she have earned for the past year?
If you deposit $584 into an account paying 17.00% annual interest compounded quarterly, how many years till there is $78,705 in the account?
What would be the marginal cost of each dollar of machinery investment in the following situations? -Firms are allowed to expense the machine.
Draw payoff diagrams for each of the portfolios below (X strike price).- Buy a share of stock and short a call, with X = $35.
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