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The total market value of the common stock of the Okefenokee Real Estate Company is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock is currently 1.5 and that the expected risk premium on the market is 6%. The Treasury bill rate is 4%. Assume for simplicity that Okefenokee debt is risk-free and the company does not pay tax.
a. What is the required return on Okefenokee stock?b. Estimate the company cost of capital.c. What is the discount rate for an expansion of the company's present business?d. Suppose the company wants to diversify into the manufacture of rose-colored spectacles. The beta of unleveraged optical manufacturers is 1.2. Estimate the required return on Okefenokee's new venture.
The machine is expected to have a salvage value of $30,000. Gorton's income tax rate is 40%. What is the machine's IRR?
Beverly started a paper route on January 1, 1995. Every three months, she deposits $300 in her bank account, which earns 8 percent annually but is compounded quarterly.
Hazardous Toys Corporation produces boomerangs that sell for $8 each and have a variable cost of $7.50. Fixed expenses are $15,000.
Explain the content and the purpose for the HUD-1 Settlement Statement is used by conventional and government insured lenders in the US.
If the current price of Coolibah stock is $22.40, and Coolibah's equity cost of capital is 16%, what price would you expect Coolibah's stock to sell for at the end of three years?
The initial proceeds per bond, the size of the issue, the initial maturity of bond, and the years remaining to maturity are shown in the following table for number of bonds.
Be specific, thus I want you to look up current options for Duke Power and tell me which option you would choose, why, and how much you would pay/receive.
Johnson Electronics is planning extending trade credit to some customers previously considered poor risks. Sales would increase by $100,000 if credit is extended to these new customers.
A life insurer owes $550,000 in 8 years. To fund this outflow the insurer wishes to buy strips that mature in 8 years. The strips have a $5,000 face value per strip and pay a 6% APR with semiannual compounding. How much must the insurer spend n..
Calculation of Portfolio Return and Beta and risk involved and what is the expected return on a portfolio that is equally invested in the two assets
Calculate the incremental depreciation on the new versus the old machine. d) Determine the net present value of the new machine. Should they purchase the new machine?
Mary is a retired widow who is financially dependent upon the interest income produced by her bond portfolio. Which one of the following bonds is the least suitable for her to own?
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