Business, 30.04.2021 16:00, jasminemonae62
Neon Corporation’s stock returns have a covariance with the market portfolio of .0415. The standard deviation of the returns on the market portfolio is 20 percent, and the expected market risk premium is 7.5 percent. The company has bonds outstanding with a total market value of $55 million and a yield to maturity of 6.5 percent. The company also has 4.5 million shares of common stock outstanding, each selling for $25. The company’s CEO considers the firm’s current debt-equity ratio optimal. The corporate tax rate is 35 percent, and Treasury bills currently yield 3.4 percent. The company is considering the purchase of additional equipment that would cost $42 million (initial investment). The expected unlevered cash flows from the equipment are $11.8 million per year for five years. Purchasing the equipment will not change the risk level of the firm. a. Use the weighted average cost of capital approach (NPVWACC) to determine whether Neon should purchase the equipment. (Hint: you need to find REL to obtain RWACC.) b. Suppose the company decides to fund the purchase of the equipment entirely with debt. What is the cost of capital for the project now? Explain.
Answers: 2
Other questions on the subject: Business
Business, 22.06.2019 08:30, ansarishaheer2888
Sonic corp. manufactures ski and snowboarding equipment. it has estimated that this year there will be substantial growth in its sales during the winter months. it approaches the bank for credit. what is the purpose of such credit known as? a. expansion b. inventory building c. debt management d. emergency maintenance
Answers: 3
Business, 22.06.2019 16:10, donbright100
Answer the following questions using the banker’s algorithm: a. illustrate that the system is in a safe state by demonstrating an order in which the processes may complete. b. if a request from process p1 arrives for (1, 1, 0, 0), can the request be granted immediately? c. if a request from process p
Answers: 1
Business, 22.06.2019 19:30, Wayne4345
John's pizzeria and equilibrium john is selling his pizza for $6 per slice in an area of high demand. however, customers are not buying his pizza. using what you learned about the principles of equilibrium, write three to four sentences about how john could solve his problem.
Answers: 1
Business, 22.06.2019 21:00, nasrah
Dozier company produced and sold 1,000 units during its first month of operations. it reported the following costs and expenses for the month: direct materials $ 69,000 direct labor $ 35,000 variable manufacturing overhead $ 15,000 fixed manufacturing overhead 28,000 total manufacturing overhead $ 43,000 variable selling expense $ 12,000 fixed selling expense 18,000 total selling expense $ 30,000 variable administrative expense $ 4,000 fixed administrative expense 25,000 total administrative expense $ 29,000 required: 1. with respect to cost classifications for preparing financial statements: a. what is the total product cost
Answers: 2
Do you know the correct answer?
Neon Corporation’s stock returns have a covariance with the market portfolio of .0415. The standard...
Questions in other subjects:
Mathematics, 11.11.2020 17:30
