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Dilbert Jones Corporation (DJC) has a projected stable growth rate of 5.5%. The company retains 25% of its earnings to fund future growth. DJC’s expected EPS (EPS1) and Cost of Equity (Rs) for various capital structures are given below. What is the optimal capital structure for DJC? Debt/Total Assets Expected EPS Rs 20% $3.50 15.0% 30% $4.00 15.5% 40% $4.25 16.0% 50% $4.75 17.0% 60% $5.00 18.0%
Galles Corporation is evaluating an extra dividend versus a share repurchase. In either case, $14,000 would be spent. Current earnings are $2.00 per share, and the stock currently sells for $50 per share. There are 2,000 shares outstanding. Evaluate ..
Consider a bond with a coupon rate of 8 percent that pays semi-annual interest and matures in 8 years. The market rate of return on bonds of this risk is currently 11 percent. What is the current value of a $1,000 face value bond?
Glenn had an auto loan of $4,500 at 7% annual interest for 3 years. He decides to pay off the remaining balance after he has made 29 payments. What will the balance due be under the rule of 78 method?
What is the present value of a perpetual stream of cash flows that pays $40,000 at the end of the year one and then grown at a rate of 4% per year indefinitely? The rate of interest used to discount the cash flows is 13%. the present value of the gro..
Stock R has a beta of 1.1, Stock S has a beta of 0.60, the expected rate of return on an average stock is 8%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exce..
A stock portfolio P is comprised of three stocks A,B,C. The expected returns for the securities are .05 for stock A, .08 for Stock B and .18 for Stock C. The variance of returns for Stock A is .01, .16 for Stock B and .25 for Stock C. Prepare an expe..
A firm wants to get their money back ASAP on a project. a) If the company's cost of capital is 10%, what is the discounted payback period on the following project: Estimated cash flows: Time 0 (Today) -$24,000 Year 1 $14,000 Year 2 $13,000 Year 3 $15..
Gemco, Inc. is currently considering the replacement of an existing machine. The new machine costs $1.3 million and requires installation costs of $10,000. The existing machine can be sold currently for $410,000 before taxes. It is three years old, h..
A proposed cost-saving device has an installed cost of $640,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $46,000, the margi..
An advantage of the net present value (NPV) method is that it:
How many shares of common stock can be obtained by converting one $1,000 par value debenture; that is, what is the conversion ratio? What was the conversion value of this issue when these debentures were originally issued?
Fuhs Pastries, Inc has 12% annual coupon bonds outstanding with 11 years remaining until maturity. The current price fo the bonds are $1,329. What is Fuhs' cost of debt? What is Paccione's Weighted Average Cost of Capital?
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