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Dickson, Inc., has a debt-equity ratio of 2.5. The firm’s weighted average cost of capital is 11 percent and its pretax cost of debt is 9 percent. The tax rate is 22 percent. |
| a. | What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | What is the company’s unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c. | What would the company’s weighted average cost of capital be if the company's debt-equity ratio were .60 and 1.50? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance
Suppose the following:
Beginning Inventory = 11246
Ending Inventory= 12348
Beginning Receivables = 6431
Ending Receivables = 6493
Beginning Payables = 8353
Ending Payables = 8919
Credit Sales = 92328
Cost of Goods Sold = 72642
Calculate the following (round final answers to 2 decimal
places):
Operating Cycle = _____ days
Cash Cycle = _____ days
In: Finance
Why is there less risk on an original equipment market than on a replacement products market?
In: Finance
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First and Ten Corporation’s stock returns have a covariance with the market portfolio of .0421. The standard deviation of the returns on the market portfolio is 18 percent and the expected market risk premium is 6.4 percent. The company has bonds outstanding with a total market value of $55.1 million and a yield to maturity of 5.3 percent. The company also has 4.3 million shares of common stock outstanding, each selling for $50. The company’s CEO considers the firm’s current debt-equity ratio optimal. The corporate tax rate is 21 percent and Treasury bills currently yield 2.7 percent. The company is considering the purchase of additional equipment that would cost $49.5 million. The expected unlevered cash flows from the equipment are $16.55 million per year for 5 years. Purchasing the equipment will not change the risk level of the firm. |
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Calculate the NPV of the project. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) |
In: Finance
(NPV with varying required rates of return)
Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $6,000,000 and would generate annual free cash inflows of $1,000,000 per year for 6 years. Calculate the project's NPV given:
a. A required rate of return of 8 percent
b. A required rate of return of 10 percent
c. A required rate of return of 14 percent
d. A required rate of return of 17 percent
In: Finance
Explain how financial distress cost is useful in explaining low leverage puzzle and the heterogeneity of leverages across the different industries.
In: Finance
(Payback period, NPV, PI, and IRR calculations) You are considering a project with an initial cash outlay of $85,000 and expected free cash flows of $25,000 at the end of each year for 6 years. The required rate of return for this project is 9 percent. a. What is the project's payback period? b. What is the project's NPV? c. What is the project's PI? d. What is the project's IRR?
In: Finance
eBook A project has annual cash flows of $3,000 for the next 10 years and then $11,000 each year for the following 10 years. The IRR of this 20-year project is 11%. If the firm's WACC is 9%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.
In: Finance
A loan of $12,000 is being repaid with payments of $1,500 at the end of each year for 10 years. These payments can earn interest at an effective rate of 6% per annum. At the end of the year, this interest is reinvested at the annual effective rate 5% for the first 6 years and only 4% for the second 4 years. Find the yield rate over the 10-year period.
In: Finance
You have received a $10,000 bonus from the company you work for and plan on investing that $10,000 into a bond maturing in 10 years. Interest earned on a bond is subject to a 28% federal income tax. The current interest rate is based upon a 10-year U.S. Treasury with a yield of 2.23% and interest rates are expected to remain stable over the ten-year period. You have the following options to choose from:
Option A: A $10,000 municipal bond that was originally a twenty-year issue. The bond is selling at a premium $11,650, earns an annual coupon of 6.5%, and matures in ten years.
Option B: A $10,000 corporate bond that was originally a fifteen-year issue. It is investment grade and is selling on a discount at $9,500 with an annual 3% coupon and matures in ten years.
Option C: A $10,000 new issue U.S. Treasury zero-coupon bond selling at par value. It matures in ten years and has a yield of 2.23%.
Option D: A $10,000 high-yield corporate bond selling at par value. It has ten years until maturity and earns an annual coupon of 7.93%.
Assume that the annual coupon is paid semi-annually. Based upon the above options, which bond, based on a strictly financial standpoint, should you invest your money in and why? Are there any other factors that may affect your decision? If so, explain.
In: Finance
What is the relationship between the convertible bond and enterprise value? What is the effect of convertible bond on enterprise value?
In: Finance
In: Finance
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A proposed new project has projected sales of $141,100, costs of $71,380, and depreciation of $4,980. The tax rate is 22 percent. Calculate operating cash flow using the four different approaches. |
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The EBIT approach |
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The bottom-up approach |
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The top-down approach |
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The tax-shield approach |
In: Finance
Knowledgeable option investors rarely buy simple calls or puts, but combine different options in order to tailor their risk/return profile. They may give up some potential return in order to have less risk, etc. Choose one of the following strategies and explain why you would want to use the strategy, how you would do it, and when you would make or lose money. Most of these have both a long and short version.
a. Straddle
b. Strangle
c. Iron Condor
d. Spread
e. Butterfly
In: Finance
Ms. Tweeter is buying a house with a cost of $350,000. She will make a down payment of $20,000 on the house, and the rest will be paid for with a mortgage loan. Her mortgage loan has an APR of 4.9% compounded semi-annually, with a weekly payment schedule and a time horizon of 20 years. The first payment is due in one week's time. How much principal have you paid off after 5 years?
In: Finance