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Your firm has debentures with a coupon of 5%, a maturity of 5 years, and a market value of 975 per bond. It has preferred stock that pays a 3.00 dividend and trades at 35 per share. It has common stock that paid a dividend or 2.00 and has a growth rate of 5%. The tax rate is 40% for marginal income. Its price is 40.00 per share. The expected dividend next year is 2.00 and the growth rate is for the income. What is the weighted average cost of capital for the firm? Use that rate in determining whether to make the below investment and say why or why not. Invest in a machine with a 3-year useful life with a cost of 3,000,000 and a scrap value of 1,000,000. Sales will increase by 2,000,000 per year and there will be no additional accounts receivable but 400,000 increase in inventory. Cost of goods sold will increase by 500,000 per year and SG&A will increase by 30,000 per year. Your tax rate is 40%.
Please show all work and formulas used.
Northman’s common equity, debt, and preferred equity are worth $70,000, $10,000 and $20,000 respectively with a total value is $100,000. The company’s common stock is currently listed at $54 per share; new preferred stock sells for $70 per share with..
What is the Modified IRR of Project D if the cost of capital is 9%? What is Project B’s Payback Period? What is the Crossover Rate between Project B and C?
Negus Enterprises has an inventory conversion period of 73 days, an average collection period of 43 days, and a payables deferral period of 35 days. Assume that cost of goods sold is 80% of sales. What is the length of the firm's cash conversion cycl..
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $765,000. This cost will be depreciated straight-line to zero over the project’s six-year life, at the end of which the sausage system can be scrapped for $100,000. If the ..
For most of us, a capital budgeting decision would be buying a house, which is a purchase with a long-term investment.
Your company is forecasting that by eliminating an existing project today that sales this year will decrease by $100,000.
You are interested in buying a stock that has a price of $72. You have projected that next year there is: a 10% probability the stock will equal $1, a 20% probability the stock will equal $44, a 30% probability the stock will equal $83, a 30% probabi..
Fama’s Llamas has a WACC of 10.3 percent. The company’s cost of equity is 13.2 percent, and its pretax cost of debt is 8.9 percent. The tax rate is 40 percent. What is the company’s target debt–equity ratio?
You find a certain stock that had returns of 14 %, -27 %, 19 %, and 21 % for four of the last five years, respectively. The average return of the stock over this period was 9.5 %. What is the standard deviation of the stock's returns?
Terrier Company is in a 35 percent tax bracket and has a bond outstanding that yields 9 percent to maturity. What is Terrier's after tax cost of debt? Assume that the yield on the bond goes down by 1 percentage point, and due tom tax reform. the corp..
The Anderson Pipe Co. just paid an annual dividend of $3.75 and is expected to grow at 8% for the foreseeable future. Harley Bevins generally demands a return of 9% when he invests in companies similar to Anderson. What is the most Harley should be w..
Woidtke Manufacturing's stock currently sells for $17 a share. The stock just paid a dividend of $1.50 a share (i.e., D0 = $1.50), and the dividend is expected to grow forever at a constant rate of 3% a year. What stock price is expected 1 year from ..
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