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You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 8 percent, -13 percent, 21 percent, 32 percent, and 15 percent. Suppose the average inflation rate over this period was 3.55 percent and the average T-bill rate over the period was 4.53 percent. What was the average real risk premium over this time period?
Based on its analysis of current conditions in Swiss capital markets, International Foods has determined that the applicable cost of capital for the project is 16 percent. Calculate the net present value of the proposed expansion project.
Buddy Corp. has a target debt-equity ratio of 0.60. Its WACC is 10.5% and the tax rate is 30%. If the company's cost of equity is 16.5% what is its pretax cost of debt?
A stock sells for $30. The next dividend will be $6 per share. If the return on equity ROE is a constant 15% and the company reinvests 20% of earnings in the firm, what must be the opportunity cost of capital?
You must evaluate a proposal to buy a new milling machine. The base price is $167,000, and shipping and installation costs would add another $9,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $100,200. The c..
Duggins Veterinary Supplies can issue perpetual preferred stock at a price of $50 a share with an annual dividend of $4.50 a share.
Which of the following is not discussed in the text as a method for analyzing risk in capital budgeting?
Portfolio risks can be calculated. Which of the following statistical formulas calculate portfolio risk?
The spot price of an investment asset is $30. It provides a fixed dividend yield of 5% with annual compounding. What is the three-year forward price?
Subway is analyzing whether they should invest in a new type of sandwich. They have already spent $10,000 on new cookies this year. Instead of investing in the new sandwich Subway could buy a new oven for $80. In figuring Subway’s incremental cash fl..
What are the benefits of ratio analysis? What are the limitations of ratio analysis? What can be done to minimize the limitations on ratio analysis? Explain.
The linear relation between an assets expected return and its Beta coefficient is the:
Using the company for which you work or one in which you are interested, choose the conversion approach you would use if the company purchased a new AIS. Explain your choice, including the benefits. Discuss how you envision the testing process.
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