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What is the required return that investors seek

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1) Dixie Chicken is considering installing a new Coke Freestyle machine in one of its franchise stores. The machine will cost $5,189.00 today, and have an annual operational cost of $1,335.00. The machine will increase store revenues by $2,662.00 in the first year. The owner expects that the additional revenues will increase by 5.00% per year going forward. The operational cost will remain at $1,335.00 per year. Dixie Chicken has a 12.00% cost of capital and will value this opportunity over 7.00 years. What is the NPV of the new freestyle machine?

2) A company has issued 109,475.00 shares of preferred stock. The preferred shares have par value of $100.00 and pay a 4.90% dividend per year. The shares are currently trading at $80.76 on the secondary market.

a) What is the required return that investors seek based on the current price?

b) What is the market value of the preferred stock issued by the company?

3) Game of Drones Military Corporation is considering a new tank project. The firm will issue new preferred stock as part of the financing package. The firm currently has its preferred stock trading at $110.00 per share. These preferred shares were issued with a par value of $100.00 and offer a dividend rate of 4.25% APR. For NEW shares of preferred stock, what coupon rate must Game of Drones use to sell shares close to a $100 par value?

4) Big Dawg Incorporated is trying to estimate its cost of equity capital. The firm believes its beta is 0.92. The current risk free rate in the economy is 1.67%, while the market portfolio risk premium is 5.00%. What is an estimate for the equity cost of capital?

Reference no: EM132585533

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