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Consider a zero-growth firm with all earnings paid out as dividends. Book and market value are equal. The firm’s EBIT =$12 million, Tax rate is 40%, Market Risk Premium is 4% and Risk Free Rate 6%. The firm has $30 million of debt, 5% interest rate, and $50 million of equity. What is the required rate of return on the firm’s equity?
Manufacturing USA has just signed a contract to buy equipment from German Car Industry, for 5,000,000 euros. The purchase was made in April with payment due three months later in July. Manufacturing USA's CEO is considering hedging strategies to redu..
A stock is currently selling for $72 per share. A call option with an exercise price of $75 sells for $3.60 and expires in three months. If the risk-free rate of interest is 3.2 percent per year, compounded continuously, what is the price of a put op..
As an organizational leader, would you be for or against tying your compensation to economic value added and why? What other ways could managers be compensated and motivated if not tied to value added economies?
Walgreens just paid a $3.25 annual dividend. The company has a policy of increasing the dividend by 3.5% annually. You would like to purchase stock in this firm but realize that you will not have the funds to do so for another three years. If you req..
Counter-point of this argument and express your opinion on this topic One to two paragraph and while in the discussion, read the point and counter-point which I have provided on this topic, then click on the forum in which you'd like to comment.
A child is born this year. On it's first birthday [after 1 year], the parents decide to deposit an equal annual contribution to the college fund that will earn 8%, compounded annually. How much should they deposit at the end of each year so that it w..
What individual’s decision is altered as a result of not taxing the imputed rent earned by those who live in their own house? How so? Explain.
In 2008, the government initiated an $8,000 tax credit for first-time homebuyers in an effort to stimulate the housing market. This means that all first-time homebuyers in 2008 were eligible to take an $8,000 deduction from their taxable income for t..
What is securitization? Answer in the context of the roles of financial markets; (i) liquidity, (ii) price discovery, and (iii) ease of transactions.
A proposed new project has projected sales of $85K, costs of $43K, and depreciation expense of $3K. All figures are annual figures. The tax rate is 35%. Calculate annual operating CF for this project. a. $27,300 b. $14,700 c. $42,000 d. $28,350 10. c..
Lloyd Corporation's 11% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 10 years, are callable 4 years from today at $1,025. They sell at a price of $1,179.98, and the yield curve is flat. Assume that interest rates are expec..
The Wildwood Widget Company needs a milling machine for its new assembly line. The machine presently costs $85,000, but has a cost inflation rate of 2%. Widget will not need to purchase the machine for 3 years. If the general inflation is expected to..
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