Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 7P
To determine
Calculate the cost of
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
G&M Motors is currently an all equity financed firm. It expects to generate EBIT of $30 million over the next year. Assume that G&M Motors’ EBIT is not expected to grow in the future and that all earnings are paid out as dividends.
Currently G&M has 10 million shares outstanding and its stock is trading at $40.00 per share. G&M is considering changing its capital structure by borrowing $100 million at an interest rate of 2% and using the proceeds to repurchase shares at its current price ($40.00 per share). Assume perfect capital markets.
After the re-capitalisation, G&M ʹs earnings per share (EPS) and the equity cost of capital are closest to:
A.
$2.90 and 14.55%
B.
$3 and 7.5%
C.
$3.73 and 9.3%
D.
$2.8 and 10.8%
Wu of Troy, New York, has $5,000 that he wants to invest in the stock market. Ji is in college on a scholarship and does not plan to use the $5,000 or any dividend income for another five years, when he plans to buy a home. He is currently considering a small company stock selling for $25 per share with an EPS of $1.25. Last year, the company earned $900,000, of which $250,000 was paid out in dividends.
What classification of common stock would you recommend to Ji?
Calculate the P/E ratio and the dividend payout ratio for this stock. Round your answers to the nearest whole number
c3.Given this information and your recommendation, would this stock be an appropriate purchase for Ji? Why or why not?
If an investor would like to sell short shares originally valued at $20,000 in which his/her cash
contribution is $10,000, what is the stock value when the investor receives a margin call given the
maintenance margin of 30%?
The current stock value increases to $23,874
The current stock value increases to $23,077
The current stock value increases to $22,428
The current stock value decreases to $22,428
Chapter 15 Solutions
Contemporary Engineering Economics (6th Edition)
Knowledge Booster
Similar questions
- An analyst gathered the following information regarding Beta Corporation: Current dividend per share = $2.18 Next year's expected dividend growth rate of 30% is expected to decline linearly over the following 8 years to a long-term constant growth rate of 6%. Řequired rate of return on the company's stock is 11%. The value of the company's stock today is closest to: 1. 41.86 2.98.54 3.88.07arrow_forwardCalculate Gross fixed capital formation if change in stock is $10,000 and gross domestic capital formation is $12,500arrow_forwardConsider the following information which relates to a given company: Item 2019 Value Earnings Per Share $6.43 Price Per Share (Common Stock) $39.59 Book Value (Common Stock Equity) $62.96 million Total Common Stock Outstanding 2.84 million Dividend Per Share $3.52 Analysts expect that the company could maintain a constant annual growth rate in dividends per share of 5.8% in the future, or possibly 7.79% for the next 2 years and 5.29% thereafter. In addition, it is expected that the risk of the firm, as measured by the risk premium on its stock, to increase immediately from 8.38% to 10.52%. Currently, the risk-free rate is 5.85%. Required: Determine the new required return for the firm's stock. % (ROUND YOUR ANSWER TO 2 DECIMAL PLACES. FOR EXAMPLE: 17.23)arrow_forward
- The capital budget of Creative Ventures Inc. is $1,000,000. The company wants to maintain a target capital structure that is 30% debt and 70% equity. The company forecasts that its net income this year will be $800,000. If the company follows a residual dividend policy, what will be its total dividend payment?arrow_forwardAt the end of 2011 Home Depot's total capitalization amounted to $29,031 million. In 2012 debt investors received interest income of $648 million. Net income to shareholders was $4,487 million. (Assume a tax rate of 35%.) Calculate the economic value added assuming its cost of capital is 10%. (Do not round intermediate calculations. Give your answer in millions rounded to 2 decimal places.)arrow_forwardIf the dividend paid last year was $3.50, at a constant growth rate of 5%, and investors demand a 20% rate of return, what is the value of the common stock of ABD Company?arrow_forward
- Crazy Racoon is now considering another bond issue that would settle on June 30, 2020 and mature in 30 years. Because the company wants to limit interest payments it has decided, along with the investment bankers, to issue the bond with a low 3.00% coupon even though the market will demand a 6.00% yield to maturity on the bond. Assuming semiannual interest (2 coupons per year) Crazy Racoon has an old bond trading in the secondary market with a low 3.0% coupon. This bond had been issued during a period of very low interest rates at a par value of 100.00 (which means the full $1,000.00 face value of the bond). It pays interest semiannually. Assume the date is June 30, 2020 and the maturity date of the bond is June 30, 2030. If the bond is trading at 77.00 (= $770.00 per $1,000.00 bond) what is the Yield to Maturity (YTM) of the bond? Settlement date 06/30/20 Maturity date Annual coupon rate Bond price (flat) Redemption value as % of par value Number of coupons per year 06/30/30 YIELD TO…arrow_forwardDon't use pen or paperarrow_forwardHurst Corp has the following investment opportunities available to accumulate $50M ten years from now. Invest $ 2,849,165 at the end of each year for 10 years. Invest $591,366 at the end of every quarter for 40 quarters. Invest $1,957,350 at the end of every six months for 20 semi-annual periods. Invest $280,000 at the end of every month for 10 years. Determine which one of the four given choices is better? Group of answer choices Alt. D Alt. C Alt. B Alt. Aarrow_forward
- Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $187,000 after income taxes. Capital employed equaled $2.6 million. Brewster is 40 percent equity and 60 percent 10-year bonds paying 6 percent interest. Brewster's marginal tax rate is 40 percent. The company is considered a fairly risky investment and probably commands a 12-point premium above the 4 percent rate on long-term Treasury bonds. Jonathan Brewster's aunts, Abby and Martha, have just retired, and Brewster is the new CEO of Brewster Company. He would like to improve EVA for the company. Compute EVA under each of the following independent scenarios that Brewster is considering. Required: spreadsheet to perform your calculations and round all interim and percentage figures to four decimal places. If the EVA is negative, enter your answer as a negative amount. 1. No changes are made; calculate EVA using the original data. -35,560 ✔ 2. Sugar will be used to replace another natural…arrow_forwardPlease don't provide handwritten solution.....arrow_forward5 Pulsar Plc is considering of exporting its products to the Swedish market. It expects to earn an annual accounting profit of £200m from doing so. It has also the option to begin exporting to India, Brasil or South Africa, but it has the production capacity for only one of the four possible markets (including Sweden). The expected annual accounting profit for the above three markets is £250m, £200m, and £150m respectively. On the basis of this information, the economic profit of exporting to Sweden is equal to: a. -£50m. b. £0m. c. £50m. d. £200m.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education