Rick Thomas Corp. just issued a dividend of $2.40 per share on its common stock. The company is expected to maintain a constant 5.5% growth rate in its dividends indefinitely. If the stock sells for $52 a share, what is the company s cost of equity?
Waterford Corp. issued a 30 year, 8 % semi-annual bond 7 years ago. The bond currently sells for 95% of its face value. The company s tax rate is 34%. What is the pretax cost of debt? What is the after-tax cost of debt?
Assume you write a call option on a non dividend paying stock. The option has a strike price of $45, volatility of 30%, a risk free return of 8% and 91 days until expiration. The current stock price in $40 and the option is for 100 shares of stock. a) What initial investment is required for a...
As a depository institution you have been able to make a large profit recently by borrowing short in the federal funds market and making longer term loans to consumers (cars and housing). You are afraid that in the next two years, short term interest rates will increase, flattening the treasury...
4. Assume you write a call option on a non dividend paying stock. The option has a strike price of $45, volatility of 30%, a risk free return of 8% and 91 days until expiration. The current stock price is $40 and the option is for 100 shares of stock. a. What initial investment is required...
Suppose that the price of a nondividend paying stock is $32, its volatility is 30% and the risk free rate of interest for all maturities is 5% per year. Set up the following positions. Show the payoff for each individual positions and the combined position and also show a graph of the payoffs...
how do you find the present value of the following future amounts 800,300,1000,1000
You expect to earn 8% per year on your investment. If you invest $3000 today, how much will your investment be worth in 9 years ?
"The Digby Company has just purchased $39,660,000 of plant and equipment that has an estimated useful life of 15 years. Suppose at the end of 15 years this plant and equipment can be salvaged for $3,966,000 (1/10th of its original cost). What will be the book value of this purchase...
An American import company has agreed to purchase 20,000 Swiss watches for 1.1 million Swiss francs at today s spot rate. The firm s financial manager has noted the following current spot and forward rates: U.S. dollars/Swiss franc Swiss francs/U.S. dollar Spot 1.8590 0.53792...
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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