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Your boss is considering an investment in new manufacturing equipment. The equipment costs $270,000 and will provide annual after-tax inflows of $45,000 at the end of each of the next 7 years. The firm’s market value debt/equity ratio is 25%, its cost of equity is 17%, and its pretax cost of debt is 9%. The firm’s tax rate is 40%. Assume the project is of approximately the same risk as the firm’s existing operations.
The company decides to increase its market value debt/equity ratio to 30%. Assume that the cost of equity and the cost of debt stay the same. What is the new weighted average cost of capital?
Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 40%. What is the firm's ..
ABC College is considering an investment in one of two common stocks to add to the employees' retirement portfolios. Given the following information, which investment is better, based upon the risk (as measured by the standard deviation) and return o..
Andrews, CPA, has been engaged to audit the financial statements of Broadwall Corporation for the year ended December 31, 20X1. During the year, Broadwall obtained a long-term loan from a local bank pursuant to a financing agreement that provided tha..
Gregg Company recently issued two types of bonds. The first issue consisted of 20-year straight (no warrants attached) bonds with an 8% annual coupon. The second issue consisted of 20-year bonds with a 6% annual coupon with warrants attached.
Twice Shy Industries has a debt-equity ratio of 1.6. Its WACC is 8.6 percent, and its cost of debt is 6.1 percent. What is the company’s cost of equity capital?
What are the annual sales for the new portable camper? What are the annual increased sales for the motor home line?
Your finance professor Dr. Anderson makes you the following offer: He will give you $3,000 at the end of each year for the next SIX years if you agree to pay him back $2,500 at the end of each of the following ten years. Should you accept this offer ..
Western Airline has decided to raise $5M in new equity by means of a rights offering. They have decided to issue 50,000 new shares. The stock currently sells for a rights-on price of $150 per share. How many shares are currently outstanding (before t..
Which of the following are TRUE about the Federal Funds Rate?
You have $26,500 on deposit with no outstanding checks or uncleared deposits. One day you write a check for $4,200 and then deposit a check for $5,100. What are your net floats?
Sales and profits of Growth Inc. are expected to grow at a rate of 25% per year for the next six years but the company will pay no dividends and reinvest all earnings. After that, the dividends will grow at a constant annual rate of 7%. At the end of..
The P Company applies overhead costs to jobs using machine hours as the allocation base. At the beginning of the year, 2014, the company estimated manufacturing overhead costs to be $1,400,000 and estimated total machine hours (the expected volume) t..
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