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Ellington Electronics wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $2.60

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Ellington Electronics wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $2.60 per share, and the current price of its common stock is $52 per share. The expected growth rate is 6 percent. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. Compute the cost of retained earnings (Ke). Cost of retained earnings 11 % b. If a $4.0 flotation cost is involved, compute the cost of new common stock (Kn). Cost of new common stock 11.42 x % Luft Watch Company is considering an investment of $15,000, which produces the following inflows: Year 1 2 3 Cash Flow $8,000 7,000 4,000 You are going to use the net present value profile to approximate the value for the internal rate of return. Please follow these steps: a. Determine the NPV of the project based on a zero discount rate. NPV $ 4000 b. Determine the NPV of the project based on a 10 percent discount rate. NPV $ 1058 X c. Determine the NPV of the project based on a 20 percent discount rate (it will be negative). (Negative answers should be indicated by a minus sign. Omit $ sign in your response.) NPV $ (1162) The Elite Car Rental Corporation is contemplating expanding its short-term rental fleet by 30 automobiles at a cost of $900,000. It expects to keep the autos for only two years and to sell them at the end of that period for 60 percent, on average, of what they cost. The plan is to generate $10,500 of incremental revenue per additional auto in each year of operation. The controller estimates that other costs will amount to 14 cents per kilometre on an average of 40,000 kilometres per car per year. She also estimates that the new business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12 percent as a cost of capital. Calculate the NPV. (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit $ sign in your response.) NPV $ -206374 x Should Elite purchase the automobiles? Yes O No Ellington Electronics wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $2.60 per share, and the current price of its common stock is $52 per share. The expected growth rate is 6 percent. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. Compute the cost of retained earnings (Ke). Cost of retained earnings 11 % b. If a $4.0 flotation cost is involved, compute the cost of new common stock (Kn). Cost of new common stock 11.42 x % Luft Watch Company is considering an investment of $15,000, which produces the following inflows: Year 1 2 3 Cash Flow $8,000 7,000 4,000 You are going to use the net present value profile to approximate the value for the internal rate of return. Please follow these steps: a. Determine the NPV of the project based on a zero discount rate. NPV $ 4000 b. Determine the NPV of the project based on a 10 percent discount rate. NPV $ 1058 X c. Determine the NPV of the project based on a 20 percent discount rate (it will be negative). (Negative answers should be indicated by a minus sign. Omit $ sign in your response.) NPV $ (1162) The Elite Car Rental Corporation is contemplating expanding its short-term rental fleet by 30 automobiles at a cost of $900,000. It expects to keep the autos for only two years and to sell them at the end of that period for 60 percent, on average, of what they cost. The plan is to generate $10,500 of incremental revenue per additional auto in each year of operation. The controller estimates that other costs will amount to 14 cents per kilometre on an average of 40,000 kilometres per car per year. She also estimates that the new business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12 percent as a cost of capital. Calculate the NPV. (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit $ sign in your response.) NPV $ -206374 x Should Elite purchase the automobiles? Yes O No

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