Your firm is considering taking on a project that will result in OCFs of $150,000 per year, forever. Your firm has a 0.85 debt - to - equity ratio. The yield to maturity on bonds is 5%. Corporate tax rate is 30%. The current stock price is $87. The firm has paid dividends of $2.25, $2.50, and $3.55 over the last 3 years and the most recent dividend payment is $3.75. Use the geometric average growth rate to estimate the cost of equity. Since this project is riskier than usual, management will apply an adjustment factor of +2% to the cost of capital for this project. What is the maximum cost of the project for us to accept? Do not round any numbers until the very last answer.
Your firm is considering taking on a project that will result in OCFs of $150,000 per year, forever. Your firm has a 0.85 debt - to - equity ratio. The yield to maturity on bonds is 5%. Corporate tax rate is 30%. The current stock price is $87. The firm has paid dividends of $2.25, $2.50, and $3.55 over the last 3 years and the most recent dividend payment is $3.75. Use the geometric average growth rate to estimate the cost of equity. Since this project is riskier than usual, management will apply an adjustment factor of +2% to the cost of capital for this project. What is the maximum cost of the project for us to accept? Do not round any numbers until the very last answer.
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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Your firm is considering taking on a project that will result in OCFs of $150,000 per year, forever. Your firm has a 0.85 debt - to - equity ratio. The yield to maturity on bonds is 5%. Corporate tax rate is 30%. The current stock price is $87. The firm has paid dividends of $2.25, $2.50, and $3.55 over the last 3 years and the most recent dividend payment is $3.75. Use the geometric average growth rate to estimate the
answer.
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