In class exercise Cost of capital
1. Topstone Industries is expected to pay a dividend of $2.10 per share in one year. This
dividend, along with the firm's earnings, is expected to grow at a rate of 5% forever. If the
current market price for a share of T
In-class exercise Capital structure 1. Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 40,000 shares of stock. The debt and equity option would consist of 25,000 shares
The MBA Decision
Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is
satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree
would allow him to achieve this goa
It’s Better Late Than Never!
“Boy, this is all so confusing,” said Ryan as he stared at the
papers on his desk. If only I had taken the adv1ce ,of my ﬁnance
instructor, I would not be in such a predicament today.’ Ryan Da
Forms of Buiness Organization
major forms in the united states
Easiest to start
Single owner keeps all the
Taxed once as personal
How much value is created from
undertaking an investment?
The first step is to estimate the expected
future cash flows.
The second step is to estimate the required
return for projects of this risk level.
The third step is to find the pr
Value earlier money on a time line
Value later money on a time line
Interest rate exchange rate between earlier
money and later money
Cost of capital
Opportunity cost of capital
Use the following to answer questions 1-6:
Given the recent drop in mortgage interest rates, you have decided to refinance your home.
Exactly five years ago, you obtained a $100,000 30-year mortgage with a fixed rate of 10
Multiple Cash Flows
you invest $500 in a mutual fund
today and $600 in one year. If the fund pays
9% annually, how much will you have in two
FV = 500(1.09)2 + 600(1.09) = 1248.05
Multiple Cash Flows Example
much will you hav