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A firm with a corporate wide debt-to-equity ratio of 0.5, an after cost tax of debt of 7 %, and a cost of equity capital of 15% is interested in pursuing a foreign project. The debt capacity of the project is the same as for the company as a whole, but its systematic risk is such that the required rate on equity is estimated to be about 12%. The after tax cost of debt is expected to remain at 7%. What is the project’s weighted average cost of capital? How does it compare with the parent’s WACC?
Macintosh computers can purchase a piece of equipment that is suspected to yield an 11% return in 10 be financed at 6% with debt. Later in the year the Company said no to the opportunity to purchase a newer machines that would yield a 9% return or co..
Movements in Cross-Exchange Rates. Last year a dollar was equal to 7 Swedish kronor, and a Polish zloty was equal to $.40. Today, the dollar is equal to 8 Swedish kronor, and a Polish zloty is equal to $.44. By what percentage did the cross-exchange ..
Firm A has a higher degree of business risk than Firm B. Firm A can offset this by using less financial leverage. Therefore, the variability of both firms' expected EBITs could actually be identical. _____ Pecking order theory states that firms use i..
You will receive $2,000 at the end of the next 12 years, assuming a 6% discount rate, what is the present value of the cash flow?
You are short 27 gasoline futures contracts, established at an initial settle price of $2.505 per gallon, where each contract represents 42,000 gallons. Compute the balance in your margin account at the end of each of the four trading days, and compu..
On excel a relationship to get Average annual income during retirement--stated in inflation-adjusted dollars: My Average annual income during retirement--stated in today's dollars is 80,000, Average annual inflation rate during your career 3.20%, and..
Entergy, a large electric utility is looking to fix its cost of gas purchases over the next 3 years. Entergy currently buys gas in the spot market at the Henry Hub spot price. Describe the flow of payments if both parties agree to the swap terms.
You buy an 8 percent, 25 year, 1000 par value floating rate bond in 1999. By the year 2004, rates on bonds of similar risk are up to 11 percent. What is your one best guess as to the value of the bond?
You are given the following probability distribution of returns for stock J: A probability of .2 that the return will be 12%; a probability of .35 that the return will be 18%; a probability of .3 that the return will be -10%; and a probability of .15..
You have $132,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 15 percent and that has only 70 percent of the risk of..
Calculate the nominal annual cost of nonfree trade credit under each of the following terms. Assume payment is made either on the due date or on the discount date.
You are considering implementing a lockbox system for your firm. The system is expected to reduce the average collection time by 2.8 days. On an average day, your firm receives 2,419 checks with an average value of $1,287 each. The daily interest rat..
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