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you know that firm XYZ is very poorly run. On a management scale of 1 ( worst ) to 10 ( best ), you would give it a score of 3. The market consensus evaluation is that the management score is only 2. Should you buy or sell the stock?
Future value of an annuity due: Jeremy Denham plans to save $2,848 every year for the next eight years, starting today. At the end of eight years, Jeremy will turn 30 years old and plans to use his savings towards the down payment on a house. If his investment in a mutual fund earns him 11.6...
"Dividend policy is mere detail". Comment on this using Zimbabwe as an example.
Nachman Industries just paid a dividend of D0 = $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock's...
General Motors has a weighted average cost of capital of 9%. GM is considering investing in a new plant that will save the company $25 million over each of the first two years, and then $10 million each year thereafter. If the investment is $100 million, what is the net present value (NPV) of the...
Crosby Industries has a debt-equity ratio of 1.5. Its WACC is 9 percent, and its cost of debt is 6 percent. There is no corporate tax. a. What is Crosby s cost of equity capital? b. What would the cost of equity be if the debt equity ratio were 2.0? What if it were 0.5? What if it were...
Suppose 1-year T-bills currently yield 3.70% and the future inflation rate is expected to be constant at 2.65% per year. What is the real risk-free rate of return, r*?
1. Suppose an investor can earn a steady 5 percent annually with investment A, while B will yield a constant 12% annually. Within 11 years' time, the compounded value of B will be more than twice the value of investment A. (SHOW THE WORK). a. True b. False 2. Which of the following...
3. Your firm is considering buying a new machine that costs $200,000, is expected to generate $110,000 in new revenue each year and will cost $45,000 a year to operate. If your firm's marginal income tax rate is 35% what is the Net Cash Flow your firm will realize from the new machine during...
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1. Can you help me with this valuation problem?: Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual after-tax cash benefits of $1,200 at the end of each year and assume that you can sell the car for after-tax proceeds of $5,000 at the end of the planned 5-year ownership period. All funds for purchasing the car will be drawn from your savings, which are currently earning 6% after taxes.
- a.Identify the cash flows, their timing, and the required return applicable to valuing the car.
- b.What is the maximum price you would be willing to pay to acquire the car? Explain.
2. How do you calculate the before tax-cost of the Sony bond and the after-tax cost of the Sony bond given the following information?:
- David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security:
- Sony bond
- Par value $1,000 Coupon interest rate 6% Tax bracket 20%
- Cost $930 Years to maturity 10