You would like to establish a trust fund that would pay annual payments to your heirs of $200,000 a year forever. You expect the trust fund to earn an average return of 7 percent. How much do you need to deposit into this trust fund today to achieve your goal?
Assume that the real risk-free rate is 2% and that the maturity risk premiumis zero. If the 1-year bond yield is 5% and a 2-year bond (of similar risk) yields 7%, what is the 1-year interest rate that is expected for year 2? What inflation rate is expected during year 2? Comment on why the...
Calculate the required rate of return for Mercury Inc., assuming that the risk free rate of return is 7%, the expected market return is 11 percent, Mercury has a beta of 2.0, and Mercury's realized rate of return has averaged 14 percent over the last 5 years. a. 15% b. 16% c. 17% d. 18%...
Brown & Sons reported sales of $100 million for 2010. The company has $70 million in total assets. Over the next year, the company is forecasting a 30% increase in sales. Since the company is at full capacity, all of its assets must increase in proportion to sales. The company also...
The Wilson Coporation has the following relationship; sales/total assets- 2.0% return on assets- 4.0% return on equity- 6.0% What is Wilson's profit margin and debt ratio? a. 2%, 0.67 b. 4%, 0.33 c. 4%, 0.67 d. 2%, 0.33 e. 4%, 0.50
3. Does this make sense as a way to do capital budgeting? 4. What is the value of the Pakistan project using the cost of capital derived from the new methodology? If this project was located in the U.S., what would its value be?
Martin's Yatchs has paid annual dividends of $1.40, $1.75, and $2.00 a share over the past three years, respectiviely. The company now predicts that it will maintain a constant dividend since its business has leveled off and sales are expected to remain constant. Given the lack of furture...
Suppose the estimated security market line is E(Ri) 4.0 7( i). a. What is the current Treasury bill rate? b. What is the current market risk premium? c. What is the current expected market return? d. Explain what beta ( i) measures.
"Globalizing the Cost of Capital and Capital Budgeting at AES" the report must follow the instructions and reflect on why the topic was assigned. what did you learn from the case? it should not repeat what is in the readings. the report should go beyond the material in the...
Do you think that administrative needs are sensitive to changes in sales, either year over year, or seasonally within a year? Can or should a company "flex" admin expenses? which ones? Expenses that are "flexed" could be fixed or variable This is just a...
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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