Solution Library


Component Cost of Debt for Use in WACC Calculation

Question Several years ago your company sold a $1,000 par value, non-callable bonds that now has 12 years to maturity and a 8.00% annual coupon that is paid semiannually. The bond currently sells for $925, and the company’s tax rate is 40%. What is the component cost of debt for use in the WA ... Read More

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Calculating WACC when the Firm is not Issuing New Stock

Question Your company’s target capital structure is 35% debt, 15% preferred, and 50% common equity. The interest rate on new debt is 7.50%, the yield on the preferred is 7.00%, the cost of retained earnings is 12. 5%, and the tax rate is 40%. The firm will not be issuing any new stock. What i ... Read More

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WACC based on Debt Equity and Tax Rate

Question Suppose that your company just paid a dividend of $1.2; the dividends are expected to grow at a constant rate of 5% indefinitely. Today’s market price/share is $45. Suppose also that your company has some bonds outstanding in the market selling for $1,035. The bonds have 8 years left ... Read More

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Relevant Cost of New Preferred Stock based on Marginal Tax Rate

Question A company will issue preferred stock to finance a new project. The firm's existing preferred stock pays a dividend of $4.00 per share and is selling for $40 per share. Investment bankers have advised that flotation costs on the new preferred issue would be 5% of the selling price. The marg ... Read More

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Calculating Cost of New Common Stock Based on Flotation Expenses

Question A company will issue new common stock to finance an expansion. The existing common stock just paid a $1.50 dividend, and dividends are expected to grow at a constant rate 8% indefinitely. The stock sells for $45, and flotation expenses of 5% of the selling price will be incurred on new sha ... Read More

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Calculation of WACC based on Common Equity and Current Market Values

Question A company has a capital structure that consists of $7 million of debt, $2 million of preferred stock, and $11 million of common equity, based upon current market values. The yield to maturity on its bonds is 7.4%, and investors require an 8% return on the company’s preferred and a 14 ... Read More

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Calculating Standard Deviation Based on Correlation Coefficients

Question Your eccentric aunt has left you $50,000 in Alcan shares plus $100,000 cash. Unfortunately, her will requires that the Alcan stock not be sold for one year and that $60,000 cash must entirely be invested in T-bills with $40,000 in any one of the other three stocks shown in the Table below. ... Read More

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Graph of Standard Deviation with Correlation Coefficient

Question Consider two stocks: ABC and XYZ with the following information   ABC XYZ Mean Return 8% 20% Standard Deviation 10% 35%   Draw the efficient frontier of portfolios if (a) the correlation coefficient is 0.4, and (b ... Read More

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Comparison of HDI of a Country for the Year 2016

Question Pick a country from each of the categories of very high HDI, high HDI, medium HDI and low HDI and present the values of HDI for the year 2016. Your answer should include the values of all indicators of HDI. Also, for each country mention a new index that’s not part of HDI. Based o ... Read More

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Review of Three Recent Articles Related to Financial Statements

Question Conduct an internet search to find and read at least three recent articles that relate to the key topic you selected. Articles may be found on any reputable website that focuses on business, such as the Wall Street Journal, Financial Times, or The Economist. Another good source of informat ... Read More

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Analysis of South Africa Currency Crisis

Question A number of currency crises have affected certain countries, which have also resulted in contagion in the sense that the crises affected neighboring countries. In a critical essay, select a country (or countries) affected by a specific currency crisis. Analyze the source of the crisis, and ... Read More

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Commercial Logic of Acquiring Mandrake Footwear

Question Evaluate the commercial logic of acquiring Mandrake Footwear, and discuss whether it is an appropriate target for Gear Active? Summary This question belongs to international finance and discusses about commercial logic of acquiring Mandrake Footwear. Word count: 1030   ... Read More

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