3. McCormick & Company is considering establishing new products in a new factory in Largo, Maryland....
3. McCormick & Company is considering establishing new products in a new factory in Largo, Maryland. The project is expected to last for eight years. To determine the right financing option, you need to determine the appropriate discount based on the weighted average cost of capital. The cost of equity is estimated using the capital asset pricing model. Cash flows are assumed to be steady, the nominal risk-free rate for the short-term US government treasury bills is 1.5 percent, the 10-year government bonds rate is 2.5 percent, and the inflation rate is 2.54 percent. What is the real risk-free rate?
Homework Answers
Real risk free rate = (1+nominal risk free rate)/(1+inflation rate)
= (1+2.5%)/(1+2.54%) - 1
= 0.99961 -1
= - 0.03901
= -0.03901%
This can be rounded off to -0.04%
Add Answer to:
3. McCormick & Company is considering establishing new
products in a new factory in Largo, Maryland....
McCormick & Company is considering a project that requires an initial investment of $24 million to...
McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each....
As you know from Project 4, McCormick & Company is considering building a new factory in...
As you know from Project 4, McCormick & Company is
considering building a new factory in Largo, Maryland. McCormick
& Company decided to offer $4,424,000 to obtain the land for
this project. The new factory will require an initial investment of
$350 million to build the new plant and purchase equipment.
You have been asked to continue your work from project 4 with a
full analysis of the proposed factory, including the start-up
costs, the projected net cash flows from...
8. A company that wants to determine its cost of equity gathers the following information: Rate of return on 3-month Tr...
8. A company that wants to determine its cost of equity gathers the following information: Rate of return on 3-month Treasury bills 3.0% Rate of return on 10-year Treasury bonds 3.5% Market risk premium 6.0% The company's equity beta 1.5 Dividend growth rate 8.0% Corporate tax rate 35% Using the capital asset pricing model (CAPM) approach, the cost of equity (%) for the company is: - %
McCormick & Company is considering a project that requires an initial investment of $24 million to...
McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each....
The directors of Westwood Limited have appointed you as their financial consultant. They are considering new...
The directors of Westwood Limited have appointed you as their financial consultant. They are considering new investment projects and need you to calculate the cost of capital for the company. The present capital structure is as follows:-
3 450 000 ordinary shares with a par value of 75 cents per share. These shares are currently trading at 14.50 per share and the latest dividend paid is 30 cents. An average dividend growth of 13% is maintained.
500 000 14% R3.00...
Help with #12? 260 Part 3: Planning for the Future investors' target rate 10. (Cost of...
Help with #12?
260 Part 3: Planning for the Future investors' target rate 10. (Cost of Equity Capital) Use the following information to estimate the VentureBanc investors'tar of return: RETURN COMPONENT RATE COMPONENT 5% Liquidity premium Risk-free rate Advisory premium Market risk premium Hubris projection premium 6% 99 7.5% 15% A. VentureBanc uses a systematic risk measure of 2.0. Based on the information shown estimate VentureBanc's investment risk premium. Then estimate the cost of equity capital for VentureBanc. B. Determine...
The Frank Stone Company is considering the introduction of a new product. Generally, the company's products have a life of about 5 years, after which they are deleted from the range of products that the company sells. The new product requires the purcha
The Frank Stone Company is considering the introduction of a new product. Generally, the company's products have a life of about 5 years, after which they are deleted from the range of products that the company sells. The new product requires the purchase of new equipment costing $4,000,000, including freight and installation charges. The useful life of the equipment is 5 years, with an estimated resale of equipment of $1,575,000 at the end of that period. The equipment will be...
need help doing the New SML line on the graph Ch 08: Assignment - Risk and...
need help doing the New SML line on the graph
Ch 08: Assignment - Risk and Rates of Return The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: REQURED RATE OF RETURN(Percent) m elum on HC's Stock RISK (Beta) Value 2.09 CAPM Elements Risk-free rate ( ) Market risk premium (RPM) Happy Corp. stock's beta Required...
4) Franco’s athletic club is planning an expansion. The owner is either going to build a completely new building or jus...
4) Franco’s athletic club is planning an expansion. The owner is
either going to build a completely new building or just add on to
the existing facility. A new building will cost $10 million, but it
is expected to increase revenues by $2 million (before taxes) per
year for ten years. An add-on to the current facility will only
cost $500,000, but projections are that it will lead to an increase
in revenues of only $150,000 (before taxes) per year...
Help with a) and b) GlaxoSmithKline plc is a pharmaceutical company. It is considering the replacement of one of its existing machines with a new model. The existing machine can be sold now for £8,...
Help with a) and b)
GlaxoSmithKline plc is a pharmaceutical company. It is considering the replacement of one of its existing machines with a new model. The existing machine can be sold now for £8,000. The new machine costs £50,000 and will generate free cash flows of £11,416.55 pa. over the next 6 years. The corporate tax rate is 35%. The new machine has average risk. GlaxoSmithKline's debt-equity ratio is 0.5 and it plans to cost of equity is 13.10%...
As you know from Project 4, McCormick & Company is
considering building a new factory in Largo, Maryland. McCormick
& Company decided to offer $4,424,000 to obtain the land for
this project. The new factory will require an initial investment of
$350 million to build the new plant and purchase equipment.
You have been asked to continue your work from project 4 with a
full analysis of the proposed factory, including the start-up
costs, the projected net cash flows from...
8. A company that wants to determine its cost of equity gathers the following information: Rate of return on 3-month Treasury bills 3.0% Rate of return on 10-year Treasury bonds 3.5% Market risk premium 6.0% The company's equity beta 1.5 Dividend growth rate 8.0% Corporate tax rate 35% Using the capital asset pricing model (CAPM) approach, the cost of equity (%) for the company is: - %
The directors of Westwood Limited have appointed you as their financial consultant. They are considering new investment projects and need you to calculate the cost of capital for the company. The present capital structure is as follows:-
3 450 000 ordinary shares with a par value of 75 cents per share. These shares are currently trading at 14.50 per share and the latest dividend paid is 30 cents. An average dividend growth of 13% is maintained.
500 000 14% R3.00...
Help with #12?
260 Part 3: Planning for the Future investors' target rate 10. (Cost of Equity Capital) Use the following information to estimate the VentureBanc investors'tar of return: RETURN COMPONENT RATE COMPONENT 5% Liquidity premium Risk-free rate Advisory premium Market risk premium Hubris projection premium 6% 99 7.5% 15% A. VentureBanc uses a systematic risk measure of 2.0. Based on the information shown estimate VentureBanc's investment risk premium. Then estimate the cost of equity capital for VentureBanc. B. Determine...
need help doing the New SML line on the graph
Ch 08: Assignment - Risk and Rates of Return The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: REQURED RATE OF RETURN(Percent) m elum on HC's Stock RISK (Beta) Value 2.09 CAPM Elements Risk-free rate ( ) Market risk premium (RPM) Happy Corp. stock's beta Required...
4) Franco’s athletic club is planning an expansion. The owner is
either going to build a completely new building or just add on to
the existing facility. A new building will cost $10 million, but it
is expected to increase revenues by $2 million (before taxes) per
year for ten years. An add-on to the current facility will only
cost $500,000, but projections are that it will lead to an increase
in revenues of only $150,000 (before taxes) per year...
Help with a) and b)
GlaxoSmithKline plc is a pharmaceutical company. It is considering the replacement of one of its existing machines with a new model. The existing machine can be sold now for £8,000. The new machine costs £50,000 and will generate free cash flows of £11,416.55 pa. over the next 6 years. The corporate tax rate is 35%. The new machine has average risk. GlaxoSmithKline's debt-equity ratio is 0.5 and it plans to cost of equity is 13.10%...
Most questions answered within 3 hours.
-
A z-score
communicates a raw score’s "relative standing"
under the normal curve in relation to:
asked 5 minutes ago -
An object is vibrating on a spring with the following equation
of motion:
?=(30 ??)cos((2?)/(160)?)
a)...
asked 5 minutes ago -
Vulcan Flyovers offers scenic overflights of Mount St. Helens,
the volcano in Washington State that explosively...
asked 7 minutes ago -
If organizations do not adapt fast enough and move incrementally
from the twentieth-century model to the...
asked 8 minutes ago -
A helium balloon with 2.5L of gas has a gauge pressure of 10,000
Pa. The balloon...
asked 12 minutes ago -
What is responsible for Jupiter's enormous magnetic field?
asked 28 minutes ago -
At the end of the year, a company offered to buy 5,000 units of
a product...
asked 29 minutes ago -
Implement C++ program for each of the following.
Let D = [-48, -14, -8, 0, 1,...
asked 49 minutes ago -
Consider a labor market in which LD = 400 – 4W and LS = 250 +...
asked 1 hour ago -
Let’s say you are teaching a typically-developing young child
how to eat with a spoon. Describe...
asked 47 minutes ago -
Ask Your Teacher A toy gun uses a spring to project a 5.6-g soft
rubber sphere...
asked 58 minutes ago -
*****DO NOT ANSWER THIS QUESTION IF YOU DON'T
KNOW*******
Question - PERSONAL DEVELOPMENT ESSAY and Detailed...
asked 1 hour ago