Management Information Systems

1149 WordsMay 23, 20135 Pages
Week 4 Assignment 4 MGM 6620 Managerial Finance Professor: Manuel V. Sicre Student Name: Zoraya Sandoval 01/28/2012 Chapter #11 11.1 Diversifiable and Nondiversifiable Risks. In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk? Some of the risk in holding any asset is unique to the asset in question. By investing in a variety of assets, this unsystematic portion of the total risk can be eliminated at little cost. On the other hand, there are systematic risks that affect all investments. This portion of the total risk of an asset cannot be lavishly…show more content…
Even if the debt is publicly traded, an additional barrier is when the firm has more than one issue outstanding; these issues are rarely the same yield because no two issues are ever completely all the same. Questions and Problems (QP) 12.1, 12.5, 12.7 & 12.14 12.1 Calculating Cost of Equity. The Boos Co. just issued a dividend of $2.40 per share on its common stock. The company is expected to maintain a constant 6 percent growth rate in its dividends indefinitely. If the stock sells over $48 a share, what is the company’s cost of equity? RE = [$2.40(1.06)/$48] + .06 | RE = 11.30% | 12.5 Calculating Cost of Preferred Stock. Sixth Fourth Bank has an issue of preferred stock with a $6 stated dividend that just sold for $94 per share. What is the bank’s cost of preferred stock? RP = $6/$94 | RP = 6.38% | 12.7 Calculating Cost of Debt. In-The-Dell Farm issued 30-year, 8 percent semiannual bond 7 years ago. The bond currently sells for 108 percent of its face value. The company’s tax rate is 35 percent. a. What is the pretax cost of debt? P0 = $1,080 = $40(PVIFAR%,46) + $1,000(PVIFR%,46) | R = 3.639% | YTM = 2 × 3.639% | YTM = 7.28% | b. What is the after tax cost of debt? RD = .0728(1 –
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