aa.7 First and Goal Corporation's stock returns have a covariance with the market portfolio of.0487. The standard deviation of the returns on the market portfolio is 20 percent andthe expected market risk premium is 6.7 percent. The company has bonds outstandingwith a total market value of $60 million and a yield to maturity of 6.5 percent. Thecompany also has 4.1 million shares of common stock outstanding, each selling for $32.The company's CEO considers the firm's current debt-equity ratio optimal. The corporatetax rate is 21 percent and the risk-free rate is 3.1 percent. The company is considering thepurchase of additional equipment that would cost $56 million. The expected unleveredcash flows from the equipment are $17.9 million per year for five years. Purchasing theequipment will not change the risk level of the firm.Calculate the NPV of the project. (Do not round intermediate calculations and enteryour answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89)> Answer is complete but not entirely correct.NPV13,032,663.10 x

NPV is an indication of an addition in the value of the company resulting from a potential…

irst and Goal Corporation's stock returns have a covariance with the market portfolio of 0487. The standard deviation of the returns on the market portfolio is 20 percent and ne expected market risk premium is 6.7 percent. The company has bonds outstanding with a total market value of $60 million and a yield to maturity of 6.5 percent. The ompany also has 4.1 million shares of common stock outstanding, each selling for $32. The company's CEO considers the firm's current debt-equity ratio optimal. The corporate ax rate is 21 percent and the risk-free rate is 3.1 percent. The company is considering the urchase of additional equipment that would cost $56 million. The expected unlevered ash flows from the equipment are $179 million per year for five years Purchasing the

irst and Goal Corporation's stock returns have a covariance with the market portfolio of 0487. The standard deviation of the returns on the market portfolio is 20 percent and ne expected market risk premium is 6.7 percent. The company has bonds outstanding with a total market value of $60 million and a yield to maturity of 6.5 percent. The ompany also has 4.1 million shares of common stock outstanding, each selling for $32. The company's CEO considers the firm's current debt-equity ratio optimal. The corporate ax rate is 21 percent and the risk-free rate is 3.1 percent. The company is considering the urchase of additional equipment that would cost $56 million. The expected unlevered ash flows from the equipment are $179 million per year for five years Purchasing the

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 2MAD

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First and Ten Corporation’s stock returns have a covariance with the market portfolio of .0501. The standard deviation of the returns on the market portfolio is 22 percent and the expected market risk premium is 6.6 percent. The company has bonds outstanding with a total market value of $56.7 million and a yield to maturity of 6.9 percent. The company also has 5.9 million shares of common stock outstanding, each selling for $34. The company’s CEO considers the firm’s current debt-equity ratio optimal. The corporate tax rate is 22 percent and Treasury bills currently yield 4.3 percent. The company is considering the purchase of additional equipment that would cost $57.5 million. The expected unlevered cash flows from the equipment are $18.95 million per year for 5 years. Purchasing the equipment will not change the risk level of the firm. Calculate the NPV of the project.
Billick Brothers is estimating its WACC. The company has collected the following information: Its capital structure consists of 28 percent debt and 72 percent common equity. The company has 13-year bonds outstanding with a 8.5 percent annual coupon that are trading at par. The company's tax rate is 32 percent. The risk-free rate is 4.3 percent. The market risk premium is 3.5 percent. The stock's beta is 1.1. What is the company's WACC? Answer Choice Below. 6.39% 6.69% 7.19% 7.49% 6.89%
The market value of MCO's equity, preferred stock and debt are $7 million, $2 million, and $13 million, respectively. MCO's equity has a beta of 1.9, the market risk premium is 7%, and the risk - free rate of interest is 3%. MCO's preferred stock pays a dividend of $2.5 each year and trades at a price of $27 per share. MCO's debt trades with a yield to maturity of 8.5%. What is MCO's after-tax weighted average cost of capital (WACC) if its tax rate is 25%? The WACC is closest to: A. 11.76% B. 11.05% C. 9.8% D. 7.98% E. 10.43%
First and Ten Corporation’s stock returns have a covariance with the market portfolio of .0506. The standard deviation of the returns on the market portfolio is 23 percent and the expected market risk premium is 6.5 percent. The company has bonds outstanding with a total market value of $56.8 million and a yield to maturity of 6.8 percent. The company also has 6 million shares of common stock outstanding, each selling for $33. The company’s CEO considers the firm’s current debt-equity ratio optimal. The corporate tax rate is 23 percent and Treasury bills currently yield 4.4 percent. The company is considering the purchase of additional equipment that would cost $58 million. The expected unlevered cash flows from the equipment are $19.1 million per year for 5 years. Purchasing the equipment will not change the risk level of the firm. Calculate the NPV of the project. Very much struggling with setting this up and solving this problem.
McCann Catching, Inc. has 3.00 million shares of stock outstanding. The stock currently sells for $12.79 per share. The firm's debt is publicly traded and was recently quoted at 89.00% of face value. It has a total face value of $19.00 million, and it is currently priced to yield 10.00%. The risk free rate is 3.00% and the market risk premium is 8.00%. You've estimated that the firm has a beta of 1.20. The corporate tax rate is 34.00%. The firm is considering a $45.89 million expansion of their production facility. The project has the same risk as the firm overall and will earn $11.00 million per year for 7.00 years. What is the NPV of the expansion? (answer in terms of millions, so 1,000,000 would be 1.0000)
Examine the following book-value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.9. There are 2 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, and the firm's tax rate is 21%. Assets Cash and short-term securities Accounts receivable Inventories Plant and equipment. Total $2.0 3.0 7.0 21.0 $ 33.0 a. Market debt-to-value ratio b. WACC BOOK VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 6%, paid annually (maturity = 10 years, current. yield to maturity = 8%) Preferred stock (par value $15 per share) Common stock (par value $0.20) Additional paid-in stockholders' equity Retained earnings Total a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? Note: For all the requirements, do not round intermediate calculations. Enter…
You have the following information to determine the per share value of a stock using the free cash flow (FCF) method of valuation: The firm has 1.852 billion shares outstanding. The market value of its debt is $3.192 billion. The free cash flow is currently $1.1559 billion. The firm’s equity beta is 0.90; the equity risk premium is 5.5%; the risk-free rate is 5.5%. The before-tax cost of debt is 7%. The tax rate is 40%. The firm has a capital structure of 75% equity and 25% debt. The FCF rate of growth is 3%. Based on the above information, calculate the following: WACC Value of the firm (using the WACC as the discount rate) Total market value of equity Value per share
IRQ has common stock outstanding, which is trading at $25 per share. IRQ paid a dividend yesterday of $2.22 per share. The dividends are expected to grow at 3%. Their beta is 1.32 The current risk-rate is 3.24% The market risk premium is 6.75% What is the estimate of the cost of common equity (retained earnings)?
A firm's stock has a market capitalization of 520 million and an equity beta of 1.05. Bonds issued by the firm have a yield rate of 8.1%. Bonds with a similar debt rating has a default rate of 3.1% and a loss rate of 55%. The total market value of the firm's bonds is 280 million. The risk free rate is 1.9% and the market risk premium is 7.5%. The volatility of the market portfolio is 23%. Suppose that the CAPM assumptions hold. Calculate the covariance between the return of the firm's assets and the return of the market portfolio. O 0.0472 0.0434 0.0548 0.0585 O 0.0510
The following information is available for Meyer Company: Dividends per share of common stock $1.80 Market price per share of common stock $30.00 Which of the following statements is true? b. The dividend yield is 16.7% which is an important measure of solvency. c. The dividend yield is 16.7%, which is of interest to bondholders. d. The dividend yield is 6.0%, which is of special interest to investors seeking to earn revenue on their investments.
Examine the following book-value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $20 per share and has a beta of 0.7. There are 2 million common shares outstanding. The market risk premium is 12%, the risk-free rate is 8%, and the firm's tax rate is 21%. BOOK-VALUE BALANCE SHEET Liabilities and Net Worth (Figures in s millions). Assets Cash and short-term securities $ 1.0 Bonds, coupon = 6%, paid annually (maturity = 10 years, current yield to maturity = 8%) $ 10.0 Accounts receivable 4.0 Preferred stock (par value $20 per share) 3.0 Inventories Plant and equipment 8.0 24.0 Common stock (par value $0.10) 0.2 Additional paid-in stockholders' equity Retained earnings 10.8 13.0 Total $ 37.0 Total $ 37.0 a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? Note: For all the requirements, do not round intermediate calculations. Enter your…
Using the following information calculate the WACC of Aqua Ltd. The company has 0.3 million shares outstanding at a price of $92 per share. The beta of common stock of is 1.2. The risk-free rate is 5% and the market risk premium is 7%. The company issued 11% preference shares with a total value of $ 25 million. The company issued 9% bonds of $33.6 million. The company pays corporate tax at 40 percent. A. 9.59% В. 9.89% С. 10.99% D. d.8.35%