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Question 1
(a) A firm has a $250,000 (nominal value) bond issue outstanding that is selling at 92 percent of face value. The coupon rate is 8% and the yield-to-maturity is 12%. The firm also has 1,500 shares of preferred stock and 15,000 shares of common stock outstanding. The preferred stock has a market price of $35 a share. The common stock has a price of $24 a share. The market return is 12%, the beta of the common stock is 1.8, and the risk-free rate is 5%. The preferred stock is expected to pay a constant annual dividend per share (forever) equal to $1.5, starting one year from now. The tax rate is 30%. What is the Weighted Average Cost of Capital?
(b) How the WACC would change if the preferred stock is expected to pay a constant annual dividend per share of $1.5 starting one year from now and this dividend is expected to grow at the annual rate of 3%?
(c) What role does the Weighted Average Cost of Capital play when determining a project's cost of capital? What happens if the firm uses the WACC for projects that are less risky than the overall firm?
If investors expect an 8 % return on common share, what is the current selling price of the stock
If Simpson is going to make up 45% of the new firm (and Lachey will comprise the remaining 55%), what will be the beta of the new merged firm? There will be no additional infusion of debt in the merger.
Is cash basis really easy to manage? What happens if 50% of my customers purchase via check and credit cards
Find the equation of the perpendicular bisector of the line AB where the coordinates of A and B are (-3, 2) and (6, 4) respectively.
Describe two (2) financial career options that an individual with a finance education might pursue and explain the value that such a position adds to a company.
What is the maximum price that should be paid for this bond? Is the bond selling at a premium and why? (Round to 2 dp)
What was the capital gains yield? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Capital gains yield %
Determine the amount of joint cost allocated to each product if the physical-measure method is used.
Suppose A borrows at the fixed rate; B at the floating rate and they both enter into a swap, whereby A pays B the Libor and receives a fixed rate of 7% - y.
Jim Nance has been offered an investment that will pay him $500 three years from today. If his opportunity cost is 7% compounded annually, what value should he place on this opportunity today? What is the most he should pay to purchase this payment t..
kelso electric is debating between a leveraged and an unleveraged capital structure. the all equity capital structure
What is the significance of 'implementation shortfall' measure as a transaction cost measure?
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