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Question 1 3 pts Winston Corporation is evaluating a new project that will require an increase...
You are a financial manager for Lenzie Corporation. The firm needs to purchase equipment for its new production plant. The total cost of the equipment is $1,500,000. It is estimated that the after-tax cash inflows from the project will be $710,000 annually for five years. Lenzie Corporation has a market value debt-to-assets ratio of 40%. The firm’s common stock has a beta of 1.85, the risk-free rate is 1.2%, and the expected return on the market portfolio is 7%. The...
Section 3: Capital Asset Pricing Model and Cost of Capital (32 marks) a. Suppose the risk free rate, FRF is 5%, the return on the market, rm is 14% and beta of stock A is 1.4, what is the required rate of return, rs of stock A? (1 mark) b. If the required rate of return on stock M, is 17%, the risk free rate is 5% and the return to market is 15%, what is the beta of stock...
23. Capital structure decisions refer to the: A. dividend yield of the firm's stock B. blend of equity and debe used by the fim C. capital gains available on the firms stock D. maturity date for the firm's securities 24. If the line measuring a stock's historic returns against the market's historic returns has a slope greater than 1.0, then the: A. stock is currently underpriced B, market risk peemium is increasing. C. stock has a significant amount of unique...
Question 48 1 pts The current debt-to-equity ratio of Crimson Corporation is 2.5. The company has failed to give a comprehensive estimate of its target capital structure. The other financial details of the company are as follows: $250,000 $100,000 $350,000 $400,000 Book value of debt Book value of equity Market value of debt Market value of equity Current yield of debt Yield to maturity of debt Effective tax rate Marginal tax rate Equity risk premium 7.50% 3096 35% 4.50% The...
Zeta Corporation is considering a project that costs $18,000,000 and will increase the after-tax cash flows by $4,000,000 per year for five years. The company has total assets of $80,000,000 and total debt of $20,000,000. The borrowing rate is 10 percent, the corporate tax rate is 21%, the risk-free rate is 3%, the beta of the stock is 1.5, and the return on the market is 12 percent The percent of debt in the capital structure is The cost of...
As a project manager of UMBRELLA CORPORATION you are evaluating a new project, the cash flow of which appear as below, and that your company uses a require rate of return of 7% to evaluate on the project such as these: Year Cash Flows (RM20,000) RM5.000 RM4,000 RM6,000 RM7,000 RM8.000 FIN2102 (F) Page 3 of 4 i. What is the project's payback period? (4 marks) ii. What is the project's net present value? (5 marks) iii. Should your company accept...
SECTION B Answer any FOUR questions in this section. Each whole question carries FIVE marks Acme Corporation has a beta of 2.0. The standard deviation of the market portfolio is 20% and Acme has a standard deviation of 50% a. Estimate the correlation between Acme and the market portfolio (3 marks) (2 marks) b. What proportion of Acme's risk is specific risk? Safecorp currently has £500 million in debt and the market value of its equity is £800 million Beta...
Question 5 1 pts What is the cost of equity for a firm if the firm's equity has a beta of 1.4, the risk-free rate of return is 3%, the expected return on the market is 10%, and the return to the company's debt is 7%? 10.37% 7.65% 12.8% 9.28% 17.0%
Question 3 1 pts General Products has an asset beta of 1.1, and a debt to equity ratio of 1.2. Their tax rate is 0.34. If the risk free rate is 0.04, and the expected return on the S&P500 is 0.17, what is the cost of levered equity for General Products?
The market value of ABC company's common stock is $20 million. It has $5 million in debt with an interest rate of 6.25%. The beta of the company's common stock is 1.25, and the market risk premium is 8%. If the Treasury bill rate is 5% and the company’s tax rate is 20%, what is the company's cost of capital? a. 13.0 percent b. 14.6 percent c. 15.0 percent d. 7.0 percent The historical returns for the past three years...