Country tables sell for $350 and contemporary tables sell for $450. Management has determined that at least 20% of the table made should be country and at least 30% should be contemporary. How many of each table should the company produce if it wants to maximize it's revenue? a. Formulate...
The real risk-free rate is 3%. Inflation is expected to be 3% this year, 4% next year, and 3.5% thereafter. The maturity risk premium is estimated to be 0.05X(t-1)%, where t=number of years to maturity. What is the yield on a 7-year Treasury note?
The real risk-free rate, r*, is 2.5%. Inflation is expected to average 2.8% a year for the next 4 years, after which time inflation is expected to average 3.75% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 8.3%, which includes a liquidity...
1. Calculate the aft er-tax cost of each component source of capital.
-Calculate the marginal cost of capital for the various intervals, or packages, of capital the company can raise next year. Plot the marginal cost of capital curve. -Using the marginal cost of capital curve from question 2, and plotting the investment opportunity curve, determine the...
Assume that a sudden rise in interest rates has caused the cost of various capital components to increase. Th e pretax cost of fi rst-mortgage bonds has increased to 11 percent; the pretax cost of subordinated debentures has increased to 12.5 percent; the company s common stock price has...
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 $217,357 $29,774 1 26,800 12,878 2 53,000 9,975 3 54,000 9,487 4 413,000 13,010 Whichever project you choose, if any, you require a 15 percent return on your...
Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Required return...
Under what circumstances might increasing dividend payouts, NOT be a good idea, and why?
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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