Homework Answers
Expected Growth Rate means return on equity on the retained earnings of the company
Hence formula of Growth rate is, Retention ratio * Return on Equity
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Given the following information about a farm business: Debt-to-equity ratio 2.0 Expected return on assets 12%...
2. Given the following information about a farm business: Rate of return on assets 8% Variance...
2. Given the following information about a farm business: Rate of return on assets 8% Variance of return on assets 4% Interest rate on debt 6% Variance of interest on debt 9% Asset to Equity 5:1 Tax rate 10% Marginal rate of consumption 50% a. Compute the expected growth in equity. b. What level of risk is associated with the rate of growth found in a. of the growth in equity. c. What might the manager do to increase the...
a. What are the expected value and standard deviation for the rate of return on assets?...
a.
What are the expected value and standard deviation for the rate
of return on assets?
b.
What is the expected rate of growth under risk?
c.
What are the standard deviation (risk) and coefficient of
variation of the expected rate of growth?
3. Nancy and Dave currently have $700,000 in assets and $260,000 in liabilities. Their average cost of debt is fixed at 7%. Their consumption and tax rates are 40% and 30%, respectively. Taxes are based on returns...
1. Explain why the costs of debt and equity are expected to increase as leverage increase?...
1. Explain why the costs of debt and equity are expected to increase as leverage increase? (Note: We didn't cover this directly in class, but we talked about this indirectly. Hint: It has to do with risk) 2. If the Debt-to-Asset ratio is .46, what is the Debt-to-Equity ratio? 3. Suppose a farm business indicates an average cost of farm debt of 12%, a rate-of-return on farm assets of 15%, and a debt-to-equity ratio of 1.0. What is the firm's...
Debt has expected return of 8% and standard deviation of 12%. Equity has expected return of...
Debt has expected return of 8% and standard deviation of 12%. Equity has expected return of 13% and standard deviation of 20%. The covariance between debt and equity is 0.0072. You have a portfolio that invests equally in debt and equity. What is the standard deviation of your portfolios?
Your firm has an ROE of 11 7%, a payout ratio of 26%. S629, 700 of stockholders' equity, and S430,000 of debt sustainable growth rate this year, how much additional debt will you need to issu...
Your firm has an ROE of 11 7%, a payout ratio of 26%. S629, 700 of stockholders' equity, and S430,000 of debt sustainable growth rate this year, how much additional debt will you need to issue? t you grow at your The Tax cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return of standard depreciation...
Suppose the debt to equity ratio is 2.5 Risk free rate is 3% Equity risk premium...
Suppose the debt to equity ratio is 2.5 Risk free rate is 3% Equity risk premium is 7%, Beta is 2.0, Cost of debt capital is 5.5%, Effective corporate tax rate is 29%, What is the after-tax WACC?
Question 8 Suppose the CAPM holds, given the following information: market portfolio's expected return = 896...
Question 8 Suppose the CAPM holds, given the following information: market portfolio's expected return = 896 risk-free rate = 496 Canyon Buff's beta = 1.5 then expected return for Canyon Buffs stock is closest to? Selected Answer: B. 16.096
Please show completed table Imagine a corporation with $1,000,000 of assets and a debt ratio of...
Please show completed table Imagine a corporation with $1,000,000 of assets and a debt ratio of 40%. ROE (return on equity) is expected to be 20% for the foreseeable future. Assuming the firm maintains the same amount of debt indefinitely (as opposed to keeping the same debt ratio), respond to the following questions. (12 marks) b. If the firm doesn’t pay any dividends or re-purchase any shares, at what rate would the firm grow from year to year? Complete the table. Year...
Calculate the firm’s expected return using the capital asset pricing model: Risk Free Rate: 2.5% Market...
Calculate the firm’s expected return using the capital asset pricing model: Risk Free Rate: 2.5% Market Return: 7% Beta: 1.5 Standard Deviation: 6% Debt: Equity Ratio: 40%
Q3. (10 Points) The debt-to-equity ratio of the CI Corp. is 0.5. To calculate the CI...
Q3. (10 Points) The debt-to-equity ratio of the CI Corp. is 0.5. To calculate the CI Corp's cost of equity, use the following information: The CI Corp's beta is 1.2, expected return on the market is 8%, and the risk-free rate is 2%. Its pretax cost of debt is 4%, what is the company's WACC? The tax rate is 35%. Q4. (10 Points) You are trying to estimate the value of the Smoothie company. The expected after-tax cashflows from assets...
a.
What are the expected value and standard deviation for the rate
of return on assets?
b.
What is the expected rate of growth under risk?
c.
What are the standard deviation (risk) and coefficient of
variation of the expected rate of growth?
3. Nancy and Dave currently have $700,000 in assets and $260,000 in liabilities. Their average cost of debt is fixed at 7%. Their consumption and tax rates are 40% and 30%, respectively. Taxes are based on returns...
1. Explain why the costs of debt and equity are expected to increase as leverage increase? (Note: We didn't cover this directly in class, but we talked about this indirectly. Hint: It has to do with risk) 2. If the Debt-to-Asset ratio is .46, what is the Debt-to-Equity ratio? 3. Suppose a farm business indicates an average cost of farm debt of 12%, a rate-of-return on farm assets of 15%, and a debt-to-equity ratio of 1.0. What is the firm's...
Your firm has an ROE of 11 7%, a payout ratio of 26%. S629, 700 of stockholders' equity, and S430,000 of debt sustainable growth rate this year, how much additional debt will you need to issue? t you grow at your The Tax cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return of standard depreciation...
Question 8 Suppose the CAPM holds, given the following information: market portfolio's expected return = 896 risk-free rate = 496 Canyon Buff's beta = 1.5 then expected return for Canyon Buffs stock is closest to? Selected Answer: B. 16.096
Q3. (10 Points) The debt-to-equity ratio of the CI Corp. is 0.5. To calculate the CI Corp's cost of equity, use the following information: The CI Corp's beta is 1.2, expected return on the market is 8%, and the risk-free rate is 2%. Its pretax cost of debt is 4%, what is the company's WACC? The tax rate is 35%. Q4. (10 Points) You are trying to estimate the value of the Smoothie company. The expected after-tax cashflows from assets...
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