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You have been hired as a consultant to help estimate the cost of capital. You have been provided with the following data: rRF = 4.10%; RPM = 5.25%; and b = 1.30. Based on the CAPM approach, what is
Assume you are planning to invest $5,000 each year for six years and will earn ten percent per year. Determine the future value of this annuity if your first $5000 is invested at the end of the firs
A Eurodollar futures quote for the period between 5.1 and 5.35 year in the future is 97.1. The standard deviation of the change in the short-term interest rate in one year is 1.4%. Estimate the forw
The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?
Under consideration is issuing $300,000 in new debt with an 8% interest rate. The corporation would repurchase $300,000 of stock with the proceeds of the debt issue. There are currently 32,000 share
Calculate the monthly payment needed to amortize an 8 percent fixed-rate 30 year mortgage loan. Calculate the monthly amortization payment if the loan (a) was for 15 years
Calculate the conversion factor for a bond maturing on January 1, 2026, paying a coupon of 10%. Calculate the conversion factor for a bond maturing on October 1, 2031, paying coupon of 7%. Suppose tha
The corporation would repurchase $300,000 of stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding and effective marginal tax bracket is zero. What will the corpor
Darling Paper Container, Inc. has purchased several machines at a total cost of $300,000. The installation cost for this equipment was $25,000. The firm plans to depreciate the equipment using the M
Compute the increased retained earnings for 2009 if the company were to declare a $2.25 common stock dividend and the company has 100,000 shares of common stock outstanding. Prepare a statement of c
The project's WACC is 11.0%. If the tax is passed, the firm will have the option to abandon the project 1 year from now, in which case the property could be sold to net $6.5 million after tax at t =
The company's depreciation expense is $400,000 and it has no amortization expense. The company is 100 % equity financed. The company has a 40% tax rate, and its investment in operating capital is $
Carlson has a 14% cost of capital and a 35% tax rate. Calculate the incremental Free Cash Flow and NPV. Should they buy the machine?
The cost of equity is 13%, the cost of debt is 9%, and the tax rate is 34%. Assuming average risk, what's the appropriate discount rate?
What passive portfolio comprised of the market-index portfolio and a money market account would have the same beta as the fund? Show that the diference between the expected rate of return on this pa
You are a financial analyst for the Lin-Knicks Company. The director of capital budgeting has asked you to analyze two proposed capital investments. Projects X and Y. Each project has a cost of $10,
Ken Stanley has calculated the marginal cost of capital for this investment to be 10%. Conduct a capital budgeting analysis for Stanley to determine whether he should purchase The Carlson Card Galle
If the borrower has a successful project, he will repay the bank $10,416.66 and if he has an unsuccessful project he will default and repay zero. At what probability of project success will the exp
Suppose that a bank has checkable deposits of $500, loans of $400 and reserves of $100. If the required reserve ratio is 6%, what are this bank's excess reserves?
New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of equity from new common stock (re)?
Discuss asymmetry of information and agency theory. Do managers always act in the best interest of shareholders?
A common stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's curren
If dividends are expected to grow at a constant rate of g in the future, and if rs is expected to remain at 12%, then what is Waldo's expected stock price 5 years from now?