If the expected dividend on a stock in the coming year is $2.50 (d1), and its co
ID: 2700756 • Letter: I
Question
If the expected dividend on a stock in the coming year is $2.50 (d1), and its constant growth rate is 5%, what would be the cost of internal equity for this firm if the current market price of its stock is $25? You can assume that the company uses the constant growth rate model.
Explanation / Answer
. If I wanted to measure the systematic risk of an asset, I would calculate its .......... As opposed to this, if I wanted to measure the absolute risk (total risk) of an asset I would calculate its ..................... (Points : 3) beta, standard deviation standard deviatio ============================================================================================================================================================================================Michaelangelo, Inc., an art firm has debt of $40,000 (market value). The cost of debt for the firm before-tax is 18.33%. The tax rate for the firm is 40%. If the firm also has equity of $60,000 (market value) whose cost is 17%, what would be the firm's cost of capital assuming that the firm uses only these two sources of financing? (Points : 3) 14.6% answer ============================================================================================================================================================================================ Cost of Capital = 18.33*(1-.40)*40000/(40000 + 60000) + 17*60000/(40000 + 60000) = 14.60%answer ============================================================================================================================================================================================ Parker Chemicals purchased a hexene extractor 10 years ago for $120,000. It is being depreciated on a straight-line basis over 15 years to an estimated salvage value of zero. It can be sold today for $10,000. Parker is considering purchasing a new more efficient extractor that would cost $270,000 installed and would be depreciated as a 10-year MACRS asset. The company's marginal tax rate is 40%. Determine the NINV if the old extractor is sold and the new one is purchased. (Points : 3) $260,000 answer ============================================================================================================================================================================================ NINV = 270000 (Purchase Cost) - 10000 ( Sales Value of Old Hexene Extractor) = 260000 answer ============================================================================================================================================================================================