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Cost of equity and capital

How will Rensselaer Felt's WACC and cost of equity change if it issues $ 50 million in new equity and uses the proceeds to retire long- term debt? Assume the company's borrowing rates are unchanged. Use the three- step procedure . Step 1 Calculate the opportunity cost of capital. Step 2 Estimate the cost of debt, r D , at the

Evaluating investment opportunity: Japan example

You have an investment opportunity in Japan. It requires an investment of $1 million today and will produce a cash flow of Y114 in one year with no risk. Suppose the risk free interest rate in the US is 4%, the risk free interest rate in Japan is 2%, and the current competitive exchange rateis Y110 per $1. What is the NPV of the

Which stock is riskier? Explain.

Common stock A has an expected return of 10%, a standard deviation of future returns of 25%, and a beta of 1.25. Common stock B has an expected return of 12%, a standard deviation of future returns of 15%, and a beta of 1.50.

Subchapter S; S corporations; Lang Corporation; S corporation stock purchases

1. What are the eligibility requirements that a corporation must meet in order to qualify under Subchapter S? 2. What limits are placed on the selection of a tax year of an S corporation? How do these limits differ from those applicable to C corporations and partnerships? 3. Durrabusiness is organized as a regular C corpo

Characteristics of MACS; efficiency in handling insurance claims

Chow Company is an insurance company in Hong Kong. Chow hires 55 people to process insurance claims. The volume of claims is extremely high and all claims examiners are kept extremely busy. The number of claims in which errors are made runs about 10%, If a claim has an error, it must be corrected by the claims examiners. Aft

Financial Management Theory

1. Much of financial management theory is based upon the assumption that individuals act rationally in their decision making. Text has noted several areas where the conclusion is that individuals do not act rationally. What is the implication of this conclusion on our understanding of traditional financial management. 2. How

Differential analysis and financial analysis

A frequent activity in managerial accounting is differential analysis. Differential analysis is about relevant costs for decision-making in management accounting. Only those costs and benefits that "differ" between alternatives are relevant in a decision. All other costs and benefits are irrelevant and should be ignored. Differe

Estimating the Current Price of BB Stock

BB Company pays a dividend of $4.00 The dividend expected growth rate for the three coming years : 6% After the three years : 4% The expected beta for BB stock 1.2 The risk free rate 3.00% The market rate 9.00% Find the estimated current price.

Stock Split Questions

Grullon Co. is considering a 7-for-3 stock split. The current stock price is $67.50 per share, and the firm believes that its total market value would increase by 5% as a result of the improved liquidity that should follow the split. What is the stock's expected price following the split?

Dynamic Futon: Forecast Level of Payable

Dynamic Futon forecasts the following purchases from suppliers: Jan. Feb. Mar. Apr. May Jun. Value of goods ($ millions) 32 28 25 22 20 20 a. Forty percent of goods are supplied cash-on-delivery. The remainder are paid with an average delay of one month. If Dynamic Futon starts the year with payables of $22

Net Income VS Cash Flows

Compare and contrast net income and cash flows. Compare and contrast market value and book value of the assets.

Financial Reporting and Current Assets: Example Problem

Which of the following is not a current asset? Choose one answer. a. Prepaid property taxes that relate to the next operating period. b. The cash surrender value of a life insurance policy carried by a corporation on its president. c. Marketable securities purchased as a temporary investment of cash. d. Insta

Carol Vessey Current Pricing Practices: Optimal Markup on Cost and Price

Carol Vessey is a managing partner of Dry Air, Inc., a New Orleans-based dehumidifier-systems distribution firm. Vessey has been asked to complete an analysis of profit margins for the firm. Unfortunately, her predecessor on this project was abruptly transferred, leaving little information on the firm's current pricing practices

Calculating Arc Elasticity of Demand and Optimal Price

Please help with the following problem: Stinging Pesticides, Inc., provides scorpion control services, to residential and business customers in the El Paso area. The company recently raised its service price from $70 to $80 per annual treatment. As a result, sales fell to 37,500 from 52,500 treatments in the year earlier peri

Suggest how Pehr Weisengraf can improve business ratios to qualify for a loan?

Pehr Weisengraf mumbled as he returned to the office of his small candy manufacturing business, Professional Confectioners. "They're willing to lend money only to those business owners who don't really need it. If you can prove you don't need it, they'll throw it at your feet. Unfortunately, we need it, and we need it fast."

Integrative Descriptions of Income Statements

Please see attachment for full problem description. Note: The blue cells are for data entry. Enter text in the T cells, formulas in the F cells, dollars or numbers in the $ cells Integrative The following income statement, statement of cash flows, and additional information are available for P

Beta Coefficients

I need help trying to solve the below problem. I understand that B is at more risk but not understanding what the formula would be to come up to the rM and beta coefficients of A and B. Security A has an expected return of 10.4 percent with a standard deviation of 15 percent, and a correlation with the market of 0.85. Securi

International Finance Market

What would happen in the market if an investor were compensated for diversifiable risk in addition to market risk? Why might accounting income not equal new cash flow?

Public Debt in the United States Security Issues

Suppose the public debt of the United States consisted of the following types of security issues (all figures in billions of dollars): Treasury bills $750 Savings bonds and notes 180 Government account series 1,500 Federal

Cost of preferred stocks

Taylor systems have just issued preferred stock. The stock has a 12% annual dividend and a $100 par value and was sold at $97.50 per share. In addition, flotation costs of $2.50 per share must be paid 1. Calculate the cost of the preferred stock 2. If the firm sells the preferred stock with a 10% annual dividend and nets $90.0

Finance: Determining Compound Growth Rate

What is the growth rate formula for a balance sheet: Assets: 2006 2007 2008 2009 2010 Cash 143,388 556,956 698905 803362 596 470 Please use excel to solve problem and explain the growth rate formula.

Hubbard's Pet Foods Financial Analysis

13-13. Hubbard's Pet Foods is financed 80% by common stock and 20% by bonds. The expected return on the common stock is 12% and the rate of interest on the bonds is 6%. Assuming that the bonds are default- risk- free, draw a graph that shows the expected return of Hubbard's common stock ( r E ) and the expected return on the pac

Pricing with elastic demand

Sunny Valley Orchards is reevaluating the pricing of its fresh-squeezed orange juice in half-gallon containers. Variable costs per half-gallon container of fresh-squeezed orange juice are $1.50. Based on Sunny Valley's market study, the management has determined that the price per half gallon should be between $2.50 and $3. C

Equilibrium for Just CDs: price/output combination and economic profits

Just CDs, Inc., has developed a booming business in the purchase and sale of used CDs and used DVDs. Demand and marginal revenue relations for the local college student market are: P= $6 - $0.00005Q MR= dTR/ dQ = $6 - $0.0001Q Fixed costs are nil, and average variable costs are constant at $4 per unit. A. Calcu

Horton Inc. Stock Transactions and Related Stock Calculations

The following transactions occurred at Horton Inc., during its first year of operation: Issued 100,000 shares of common stock at $5 each; 1,000,000, shares are authorized at $1 par value. Issued 10,000 shares of common stock for building and land. The building was appraised for $20,000, but land value was undetermined. The st