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U.S. Robotics Inc. has a current capital structure of 30% debt and 70% equity Its current before-tax cost of debt is 8%, and its tax rate is 35%. It currently has a levered beta of 1.15. The risk-free rate is 3.5%, and the risk premium on the market is 7%. U.S. Robotics Inc. is considering changing its capital structure to 60% debt and 40% equtiy. Increasing the firm's level of debt will cause its before-tax cost of debt to increase to 10%. Use the Hamada equation to unlever and relever the beta for the new level of debt. What will the firm/s weighted average cost of capital (WACC) be if it makes this change in tis capital strucutre?
Company A can borrow yen at 14.7 percent and dollars at 13.7 percent. what is the gain to each party to the swap? The gain is evenly split between the two parties and exchange rate risk assumed by the intermediary. Jamie is analyzing the estimated ne..
A stock had annual returns of 11 percent, 18 percent, 21 percent, 20 percent, and 34 percent over the past five years. What is the average of these returns? What is the standard deviation of these returns?
The bid-ask quotes for the Pound spot rate is $1.60-$1.62 and for the Canadian dollar spot rate is $0.65-$0.69. What is the Pound/C$ crossrate?
Nonconstant Growth Valuation-What is your estimate of the stock's current price?
What are two ways to increase the growth rate? What role does risk play in the leverage choice?
A company has determined that its optimal capital structure consists of 40 percent debt and 60 percent equity.
Interpret your results. In particular, focus on the differences between the variance analysis here and the Carroll Clinic illustration presented in the chapter.
You want $5000 5 years from now and you can get a 4% rate of return. How much would you have to invest today to get that $5000 in 5 years?
Based on ROE for a sample of 20 banks for the year before and after the Sarbanes-Oxley Act, Choose at least three different significant levels to conduct the hypothesis test. Is it possible that a Type I error occurred with the hypothesis test? Why o..
10 years ago, when the relevant cost index was 125, a nuclear centrifuge cost $40,000. The centrifuge had a capacity of separating 1500 gallons of ionized solution per hour. Today, it is desire to build a centrifuge with capacity of 4500 gallons per ..
How would you engage in arbitrage to profit from these three rates? What is the profit for each dollar used initially?
You are offered an investment with returns of $ 1,211 in year 1, $ 4,785 in year 2, and $ 5,756 in year 3. The investment will cost you $ 6,129 today. If the appropriate Cost of Capital (quoted interest rate) is 9.4 %, what is the Profitability Index..
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