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)

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)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Handy Handbags (HH) recently paid a dividend of $2.00 (D0), which is expected to grow at 7%. HH’s stock price is $23, its beta is 1.6, the yield on its bonds is 12%, and the risk premium on the company’s own stock is 5%. The risk-free rate is 6% and the market risk premium is 4%. Flotation costs will be 10% if Handy issues new common stock. Using the bond yield plus risk premium method, compute the cost of retained earnings for HH: Question 14 options: 19% 16% 11% 17%
XYZ currently has common stock trading at $40 per share. XYZ just paid a dividend of $2.00 per share, which is expected to grow at a constant rate of 5%. XYZ's beta is 1.5, the risk-free rate is 2%, and the market return is expected to be 8%. The pre-tax yield on XYZ's bonds is 7%. XYZ's finance department believes that new stock would require a premium of 5% over their own bond yield. Flotation cost for issuing new stock is 10%. Compute the cost of retained earnings using the bond yield plus risk premium approach (show your answer in percent, and to 2 decimal places. Example: 9.62%).
Ripple Wine Merchants has 10,700 shares of stock outstanding at a price per share of $63. The risk-free rate is 2.8% and the expected market return is 9.8 %. Ripple has a beta of 1.59. The company also has 320 bonds outstanding, with a par value of $1000 per bond. The after-tax cost of debt is 5.89% and the bonds sell for 93.6% of par. What is the firm's WACC if the tax rate is 21%? O Multiple Choice 9.52% 9.44% 9.78% 9.14%
Carnival Corporation (CCL) recently sold new bonds at discount price of $949.44. The bonds have a short 4-year maturity, have a coupon rate of 11.50%, and pay interest semi-annually. In addition to the $9.302 billion worth of bonds outstanding, Carnival also has $12.009 billion worth of common stock equity outstanding. According to Yahoo! Finance, Carnival's stock has a beta of 1.95. Currently, the expected return on the market portfolio and risk-free rate are, 6.80% and 0.74%, respectively. a. Calculate the market value weights for Carnival's capital structure. b. Calculate Carnival's cost of equity using the CAPM. c. Calculate Carnival's before-tax cost of debt. d. Calculate Carnival's current WACC using a 21%corporate tax rate.
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 expected return on the market is 12.36 %, the risk-free rate is 4.88 %, and the tax rate is 18.00 %. Semper Fun Sports has 310,000 common shares outstanding that are priced at $40.20 per share and have an expected return of 16.96 % and an expected real return of 14.62 %. Last year, Semper Fun Sports common stock had a return of 11.66 %. The company also has 411,000 shares of preferred stock outstanding that are priced at $15.50 per share and have an expected return of 13.36 % and an expected real return of 11.81%. Last year, Semper Fun Sports preferred stock had a return of 13.36%. Finally, the company has 10,000 bonds outstanding with a coupon rate of 9.69 %, yield-to-maturity of 4.70%, current yield of 8.44%, face value of $1,000.00, and price of $1,260.00. What is the weighted average cost of capital for Semper Fun Sports? 9.73% (plus or minus 0.02 percent) O 11.32% (plus or minus 0.02 percent) 12.21% (plus or minus 0.02 percent) 10.98% (plus or minus 0.02 percent) None of the…
The company has invested $400,000,000 in stocks and $600,000,000 in bonds. Stocks has a standard of 7%, while bonds have 10%. The correlation between stocks and bonds is 0.10. Calculate the portfolio VaR (DEAR) at 99% given mean of 10%. Calculate the 1-year expected loss of a $100 million portfolio comprising 10 B-rated issuers. Assume that the 1-year probability of default for each issuer is 6% and the average recovery value for each issuer in the event of default is 40%.
Vestal Corp. has a beta of 1.3, the market risk premium is 7% and the risk-free rate of interest is 4%. Vestal's preferred stock pays a dividend of $4 each year and trades at a price of $40 per share. Vestal's debt trades with a yield to maturity of 8.5%. The market value of equity, preferred stock and debt for Vestal Corp. are $80 billion, $40 billion and $120 billion, respectively. What is Vestal's weighted average cost of capital if its tax rate is 30%?
XYZ currently has common stock trading at $40 per share. XYZ just paid a dividend of $2.00 per share, which is expected to grow at a constant rate of 5%. XYZ's beta is 1.5, the risk-free rate is 2%, and the market return is expected to be 8%. The pre-tax yield on XYZ's bonds is 7%. XYZ's finance department believes that new stock would require a premium of 5% over their own bond yield. Flotation cost for issuing new stock is 10%. Compute the cost of retained earnings using the bond yield plus risk premium approach (show your answer in percent, and to 2 decimal places. Example: 9.62%). Question 4 options:
Handy Handbags (HH) recently paid a dividend of $2.00 (D0), which is expected to grow at 7%. HH’s stock price is $23, its beta is 1.6, the yield on its bonds is 12%, and the risk premium on the company’s own stock is 5%. The risk-free rate is 6% and the market risk premium is 4%. Flotation costs will be 10% if Handy issues new common stock. Using the discounted cash flow method, compute the cost of retained earnings for HH: Question 13 options: 13.3% 18.4% 16.3% 15.7%
Spartan Machinery stock trades at $60 per share with a beta of 1.5, an estimated market return of 12%, and a risk free rate of 5%. There are 20 million shares outstanding. The company has bonds with a face value $1 billion outstanding and a market value of $980 million. The coupon rate is 9% (semiannual coupons) and there are 10 years to maturity. The company has a tax rate of 38%. What is the WACC?

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