Managerial Finance: Calculating the weighted average cost of capital.
A company's pre-tax cost of debt is 10%. Their preferred stock pays a $10 dividend and sells for $100. Common stock is selling for $50 and the next expected dividend will be $3. The dividend growth rate on common stock is 8%. The company's tax rate is 30% and their capital structure is: Debt: 50% ...continues
Apox. Corp. expects to receive $2,000 per year for 10 yrs and then $3,500 per year for the next 10 years. What is the present value of this 20-yr cash flow at 11%? Please show the work. (Answer choices are $19,033; $27,870; and $32,389) So which is it?
You have a portfolio with a total value of $9,000 which has an expected return of 12% with a beta of 1.2. You plan to buy $1,000 of a stock with an expected return of 20% and a beta of 2.0. What will be the expected return and beta of the portfolio after purchasing the new stock? a) 12.0%, 1.2 b) 12.8%, 1.28 c) 13.2%, 1.4 ...continues
Calculating the required rate of return.
The assets of a particular investment fund are: Stock A with an Investment of $200,000 and a beta of 1.50. Stock B with an Investment of $300,000 and a beta of -0.50. Stock C with an Investment of $500,000 and a beta of 1.25. Stock D with an Investment of $1,000,000 and a beta of 0.75. The required market rate of return is ...continues
Managerial Finance: Calculating how much should be paid for a stock.
Anybody Coal Co. expects tough economic conditions for the foreseeable future. Their current beta is 1.2, the risk-free rate is 10% and the required rate of return on the market is 15%. Anybody paid a dividend of $4 today. Analysts are predicting a steady decline of 6% per year in dividends for the foreseeable future. What is th ...continues
Managerial Finance: Calculating the expected rate of return.
Shady Dealings Co. has a beta of 0.7 and a required rate of return of 15%. The market risk premium is currently 5%. If we expect the inflation premium to increase by 2% and Shady Dealings to acquire assets which will increase its beta to 1.05, what will be Shady Dealings' new required rate of return? a) 13.5% b) 22.8% c) 1 ...continues
Not quite sure how to do this problem. Suppose the NJ government decides to impose a $1,000 per student tax on colleges--each college has to pay $1,000 for each student enrolled. The supply curve of college education (before tax) is Qs = 40P, and the demand curve is Qd = 400,000 - 10P. a. Find the pre-tax equilibrium price ...continues
Explain how the effects of a requirement that firms provide additional safety equipment to each worker in an industry depends on the substituability of capital for labor and the extent to which workers in the industry can find jobs elsewhere.
In a hypothetial society, the government has decided to right the historic wrongs done to vertically challenged (ie short) people. Part of the program involves subsidizing the purchase of stilts by short people. Specifically, each pair of stilts purchased by a short person recieves a subsidy of S percent. To finance this subs ...continues
In Risainia (a hypothetical country), the prices of commodities such as food and clothing are set in a free market, but housing is heavily subsidized by local governments. A two-bedroom apartment, for example, might rent for $10.50 per month. (Utilities and other fees increase the cost to about $350.) Consider the following st ...continues
