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In one year from now, an investment project has a free cash flow of either 130,000 or 180,000 with equal probabilities. The required investment is 100,000 and the project’s unlevered cost of capital is 20%. The risk-free rate of interest is 10%.
Assume now that the required investment is financed with borrowed funds at an interest rate of 10% (equal to the risk-free rate). The debt is to be fully repaid as the actual free cash flow materialises by the end of the year.
What is the value of the levered equity? State your answer as a whole number without any decimal points.
Garner Company requires its marketing managers to submit estimated cost behavior data on all requests for new products or expansions of a product line. Judy Oslo is a new manager. Her calculations show a fixed cost for a new project at $100,000 and a..
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River Rock, Inc. just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years from now if the required ret..
Use this information to compute the company’s WACC and then use the WACC as the required return for this project.
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If their yields to maturity next year are still 8%, what is the rate of return on each bond?
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A company's assets have a total book value is $163.2 million. The company has 8.3 million shares of common stock outstanding which are trading at $53 per share. They also have two bond issues circulating on secondary markets. On a book value basis, t..
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