What is the required rate of return on this investment

Assignment Help Finance Basics
Reference no: EM132395409

A firm's target capital structure is 60 percent debt and 40 percent common equity. The firm's common stock has just paid a dividend of $2 per share. It is expected that the dividends of this firm will grow at a rate of 10 percent per year in the future. The current price of the common shares is $30. If new common shares are issued, it will be necessary to incur flotation costs of $5 per share. The firm's bonds have a par value of $1,000; a coupon rate of 7 percent paid annually; 10 years to maturity; and currently sell for $1,050 each. Flotation costs on similar new bonds would be 4 percent of the par value on an after-tax basis. The firm is considering a project with an investment of $10 million. The firm doesn't have enough cash for the investment and will have to issue common shares to raise the $10 million. What is the required rate of return on this investment if the firm's tax rate is 40 percent and the project has the same level of risk as the firm?

Reference no: EM132395409

Questions Cloud

How each assumption applied to adult learning activities : Explanation of how each assumption might be applied to adult learning activities in a classroom or training setting. Use a minimum of five references to support
Explain to what extent the corporation shareholders : Explain to what extent the corporation's shareholders might feel the corporation breached any measures of an entity of the highest ethical standards.
Compare the closing prices for the two candidates : Compare the closing prices for the two candidates in a given state and classify a candidate whose contract has a higher price as the predicted winner.
Calculate voltage waveform for output load : EE530 Assignment - Simulate the above circuit using Simulink/MATLAB, and calculate voltage waveform for output load (R=100 Ohm)
What is the required rate of return on this investment : What is the required rate of return on this investment if the firm's tax rate is 40 percent and the project has the same level of risk as the firm?
What is its default risk premium : An 11-year corporate bond has a yield of 8.7%, which includes a liquidity premium of 0.30%. What is its default risk premium? Must show work.
Depreciation and amortization expense : What was its depreciation and amortization expense? (Round answer to 2 decimal places and enter your answer in dollars, e.g. 9,700,000.25)
Qualitative-quantitative factors involved in site selection : What is the framework for evaluating alternative site locations? What are the qualitative and quantitative factors involved in site selection?
Compute the value of rusty bonds : They have 14.5 years to maturity and a par value of $1,000. Compute the value of Rusty's bonds if investors' required rate of return is 7%.

Reviews

Write a Review

Finance Basics Questions & Answers

  Compute the ear for each investment choice

You have found three investment choices for a one-year deposit: 11.6% APR compounded monthly, 11.6% APR compounded annually, and 10.9% APR compounded daily.

  Examples of money market or capital market securities

Indicate whether the following instruments are examples of money market or capital market securities.a. U.S. Treasury bills b. Long-term corporate bonds c. Common stocks d. Preferred stocks e. Dealer commercial paper

  Assume venture healthcare sold bonds that have a ten-year

assume venture healthcare sold bonds that have a ten-year maturitya 12 coupon rate with annual payments and a 1000 par

  Regular credit default swap and a binary credit default swap

Explain the difference between a regular credit default swap and a binary credit default swap. - List the cash flows and their timing for the seller of the credit default swap.

  Doublewide dealers has an roa of 10 percent a 2 percent

doublewide dealers has an roa of 10 percent a 2 percent profit margin and a return on equity equal to 15 percent. what

  If you can invest money elsewhere at 8 compounded

if you can invest money elsewhere at 8 compounded semi-annually what should be the market value present value for a

  Research appropriate insurance plans

Research, identify, and describe appropriate insurance plans for a small business. This involves interviewing an insurance broker and/or searching the library.

  Draw a timeline showing the expected cash flows

1.A bond with 10 years to maturity has a face value of $1,000. The bond pays an 8% semiannual coupon, and the bond has a 9% nominal yield to maturity. a.Draw a timeline showing the expected cash flows to the bondholder.  Make sure you clearly identif..

  Compute the balance of dividends in arrears

Compute the dividends paid to the preferred and common shareholders for each of the years since 2008.

  Suggest a trading strategy for exploiting such opportunities

In January, May futures for sugar (world) trades for 7 cents per pound, while sugar (domestic) trades for 22 cents per pound. You consult technical charts.

  If he can earn 6 percent apr with monthly compounding on

johnson needs to have 60000 in 8 years. to reach the goal he intends to make monthly contributions to a savings plan.

  Result in no change in its ebit margin

1. If Moon Corporation has an increase in sales, what would result in no change in its EBIT margin? Explain in details.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd