A firm has 2,000,000 shares of common stock outstanding with a market price of $2.00 per share. It has 2,000 bonds outstanding, each selling for $1,200. The bonds mature in 15 years, have a coupon rate of 10% and pay coupons annually. The firm’s beta is 1.2, the risk free rate is 5%, and the market risk premium is 7%. The tax rate is 34%. Calculate the WACC?

A firm has 2,000,000 shares of common stock outstanding with a market price of $2.00 per share. It has 2,000 bonds outstanding, each selling for $1,200. The bonds mature in 15 years, have a coupon rate of 10% and pay coupons annually. The firm’s beta is 1.2, the risk free rate is 5%, and the market risk premium is 7%. The tax ra ...continues

Finance - Stock and Dividend

Constant-Growth Model. Gentleman Gym just paid its annual dividend of $3 per share, and it is widely expected that the dividend will increase by 5 percent per year indefinitely. 1. What price should the stock sell at? The discount rate is 15 percent. 2. How would your answer change if the discount rate were only 12 perc ...continues

Finance - Growth Model

How do I start a growth model to this problem? Constant-Growth Model. Arts and Crafts, Inc. will pay a dividend of $5 per share in 1 year. It sells at $50 a share, and firms in the same industry provide an expected rate of return of 14 percent. What must be the expected growth rate of the company's dividends?

Financial Economics

Suppose that there are many stocks in securities markets and you locate two of them which have the following characteristics: Stock Expected Return Standard Deviation A 3% 6% B 8% 10% Correlation of the two returns = -1 a. If you wanted to invest in Stocks A and B in such a way as to mi ...continues

Financial Economics

1. Assume that the risk-free rate of interest is 3% and the expected rate of return on the market is 9%. A share of stock is selling for $55 at the beginning of the year. It will pay a dividend of $2 per share at the end of the year. Its beta is 1.2. What do investors expect the stock to sell for at the end of the year? 2 ...continues

Morgan Stanley economists have determined the states of nature and corresponding returns for both Morgan Stanley stock and the S&P 500 index.

1. Morgan Stanley economists have determined the states of nature and corresponding returns for both Morgan Stanley stock and the S&P 500 index. What is the covariance of the returns on Morgan Stanley stock with the S&P 500? What is the beta of Morgan Stanley stock? Probability Morgan Stanley S&P500 ...continues

Financial Economics

1. Mark Harrywitz proposes to invest in two different stocks, X and Y. He expects a return of 12% from X and 8% from Y. The standard deviation of returns is 20% for X and 10% for Y. The correlation coefficient between the returns is .2. a. Compute the expected return and the standard deviation of the following portfolios ...continues

Financial Economics

Your investment horizon is one year. You observe that the government is offering a completely safe one-year Treasury instrument with a 5 percent return. You also assume that the historical returns above give you the best available information about future expected returns, variances and covariances for the alternative asset cl ...continues

Rate of Return/Straight Line Depreciation

1. What is the rate of return on an investment over it's economic life that costs $29,000 and has a $1,000 salvage value after 7 years (straight line depreciation) if it can earn $6,000 before taxes annually? Assume that you are in a 25% tax bracket. 2. A new machine will cost your firm $50,000. It will be depreciated over ...continues

Finance

Here are several assertions about typical corporate dividend policies. Which of them are true? Writ out a corrected version of any false statements. a. Most companies set a target dividend payout ratio. b. They set each year's dividend equal to the target payout ratio times that year's earnings. c. Managers and inve ...continues