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Calculating After-Tax WACC: Example Problem

A company is 40% financed by risk-free debt. The interest rate is 10%, the expected market risk premium is 8%, and the beta of the company's stock is .5. What is the company cost of capital? What is the after-tax WACC, assuming that the company pays tax at a 35% rate?

Finance

CBS bond with a par value of $1,000, an interest rate of 7.625 percent, and a maturity of 10 years The bond is selling for $986. Alabama Power Company preferred stock with a $50 par value and a dividend of $2.8125 per 61 year. The stock is currently trading at $39 per share. Emerson Electric common stock that is selling fo

Memo recommending financial mix of debt and equity

Write a brief memorandum addressed to the instructor that discusses how your company (project company) is financed. Discuss the mix of debt and equity financing. Additionally, discuss what type and mix and financing would you recommend for your company. Provide your reasoning for your recommendations.

Campbell Company's Capital Budgeting Cash Flows

The Campbell Company is evaluating the proposed acquisition of a new milling machine. The machine's base price is $108,000, and it would cost another $12,500 to modify it for special use. The machine fall into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The machine would require an increase in net wor

Expected Rate of Return on Treasury Security

My real risk-free rate is 3.50%, average future inflation rate is 2.25%, and a maturity premium of 0.10% per year to maturity applies, i.e., MRP = 0.10%(t), where t is the years to maturity. What is the rate of return I should expect on a 5-year Treasury security, assuming the pure expectations theory is not valid? No

Financial Review: 75 multiple choice questions

See attached file also. Please provide answers and a brief explanation. 1. Which of the following is not a product cost? a. The cost of commissions paid to sales staff b. The cost of ordering production supplies c. The cost of rent of the manufacturing facility d. (a) and (c) 2. Dave Wilburn is a stockbroker. I

Opening a branch

King, Inc., a successful Midwest firm, is considering opening a branch office on the west coast. Under normal economic conditions, with a 45% probability of occurring, King can expect to earn a net income of $50,000 per year. In a mini-recession, at 25% probability, King will earn $20,000. In a severe recession, at a 20% probabi

Calculate current price per share for Cali Corporation

Calculate the current price per share for Cali Corporation Sales = 10,000 units Sales price per unit = $12 Variable cost per unit = $6 Fixed costs = $10,000 Long-term debt = $15,000 Interest rate on long-term debt = 8% Tax rate = 40% Dividend payout ratio = 60% Expected long-term growth rate = 8% Shares of common sto

Finance - Interest rate and present value.

1. At an interest rate of 12%, the six-year discount factor is .507. How many dollars is $.507 worth in six years if invested at 12%? 2. If the PV of $139 is $125, what is the discount factor? 3. If the cost of capital is 9%, what is the PV of $374 paid in year 9? 4. A project produces a cash flow of $432 in year 1, $13

Calculate income from operations; changes in estimates

PRACTICE 8 Prepare an Income Statement to determine Income from continuing operations and below the line: a) extraordinary loss ($100 tax) and b) loss in discontinued operations ($120 tax). (PRACTICE 8) COMPUTATION OF INCOME FROM CONTINUING OPERATIONS Sales $12,000 Cost of goods sold 5,000

Johnson Industries: What is the project's initial investment outlay?

Johnson Industries is considering an expansion project. The necessary equipment could be purchased for $9 million, and the project would also require an initial $3 million investment in net operating working capital. The company's tax rate is 40%. What is the project's initial investment outlay?

Relationship of Financial Markets and Institutions

The recent economic difficulties in the United States are often linked to financial markets and institutions. This raises the question, what is the relationship between financial markets, financial institutions and macroeconomic performance of the economy?

Supernormal Growth Stock Valuation for Taussig Technologies: Calculate yields

Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same supernormal growth rate is expected to last for another 2 years (g1 = g2 = 20%). a.) If D0 = $1.60, rs = 10%, and gl = 6%, then what is TTC's stock worth today? What is expected dividend yield and its capital gains y

Rolen Riders Preferred Stock Valuation

Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 10% of its $100 par value. Preferred stock of this type currently yields 8%. Assume dividends are paid annually. a.) What is the value of Rolen's preferred stock? b.) Suppose interest rate levels have risen to the point where the pre

Boehm Incorporated Constant Growth Valuation

Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D=$1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, r, is 15%. What is the value per share of Boehm's stock?

McKinnley Corp financing plan; Miller Co EOQ, inventory; Acme ROI, dividends

1. McKinnley Corporation is developing a plan to finance its asset base. The firm has $5,000,000 in current assets, of which 20% are permanent, and $12,000,000 in fixed assets. Long-term rates are currently 9.5%, while short-term rates are 7%. McKinnley's tax rate is 30%. a. Construct a conservative financing plan with 80

Is it better to finance or invest?

Please help with the following problem. Many times managers need to make decisions on what equipment to buy and how to finance it. Suppose you are in the market for a new car for your business. Choose a vehicle that will suit your needs. You have the cash to pay for it if needed. You can buy the car with cash or finance

Finance: Are topics relevant to non-profit organizations?

Discuss whether or not you feel the following topics are relevant to Non-Profit Organizations. Discuss how you feel these topics are similar or different in a Non-Profit Organization. 1. ethics 2. capital budgeting 3. strategic planning 4. financial ratios 5. EFN 6. cash flows and other financial statements You may

MC short selling and efficient portfolio choices

1- You wish to sell short 100 shares of XYZ Corporation stock. If the last two transactions were at 34.10 followed by 34.15, you only can sell short on the next transaction at a price of : a. 34.10 or higher. b. 34.15 or higher. c. 34.15 or lower. d. 34.10 or lower. 2- Stocks A, B, and C have the same expected return an

Finance: Analyze and select investment from CBS bond, Alabama Power, or Emerson

You have finally saved $10,000 and are ready to make your first investment. You have the three following alternatives for investing that money: ? A CBS bond with a par value of $1,000, an interest rate of 7.625, and a maturity of 10 years. The bond is selling for $986 ? Alabama Power Company preferred stock with a $50 par

Company raise funds with preferred stock instead of debt

Why would a company raise funds with preferred stock instead of debt? One of the reasons they are issued with preferences is because they also have restrictions compared to common shares. The restrictions commonly include: - no voting rights or say in the makeup of the board of directors - no requirement for any payment o

Preferred stock participating characteristic

In the summary of the preferred stock vs. common stock, one of the things mentioned was that "Preferred stockholders do not participate in the earnings of the company beyond the stated rate in the way that common stockholders do." This is not always the case. Sometimes preferred stock is structured so that they will share in

Preparing Journal Entries for Depreciation and Amortization

A company purchased a new factory machine for $650,000. The machine is expected to be productive for 5 years and, at the end of the 5 years, it is expected to be worth $50,000 in salvage value. The machine manufactures widgets and is expected to produce 5 million widgets over its productive life. As it eventually turned out,

Outlay to Fund Replacement of the Old Delivery Van

This company is considering a replacement of an old delivery van with a new one that is more efficient. The old van cost $30,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight line method over a useful life of 10 years. The old van could be sold today for $5,000. The new van has