To estimate the company’s WACC, Ditto Inc. recently hired you as a consultant.  You have obtained the following information.  (1) The firm’s bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,000.00. (2) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.0.  (3) The company’s tax rate is 40%.  (4) The target capital structure consists of 35% debt and the 65% common equity.  The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares.  What is its WACC?

Ellman Systems is considering a project that has the following cash flow and WACC data.                What is the project’s NPV?   WACC:  8.00% Year                                   0                    1                    2                    3      Cash flows                   -$1,000           $500              $500              $500

Philip Zimbardo’s simulated prison study was carried out to its full anticipated duration.

Curtis Corporation’s noncallable bonds currently sell for $1,065. They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000. What is their yield to maturity (YTM)?

A stock is expected to pay a dividend of $1.05 at the end of the year.  The expected rate of return is rs= 10%, and the expected constant growth rate is g = 4.4%.  What is the stock’s current price?

Noncallable bonds that mature in 10 years were recently issued by Sternglass Inc. They have a par value of $1,000 and an annual coupon of 6.5%. If the current market interest rate is 7.0%, at what price should the bonds sell?

If a stock is riskier than the average stock, the required return will be greater than the market risk premium according to the CAPM model.

You anticipate investing $3,500 per year for the next 40 years in a fixed-income mutual fund that you think will return 4% per year. Assume that the first investment occurs at the end of this year and that the last investment occurs at year 40. How much will you have in total at the 40 year point?

All else equal, the fair (or intrinsic) price of a stock should fall if the market risk premium decreases according to the CAPM model.

You just graduated, and you plan to work for 10 years and then to leave for the Australian “Outback” bush country.  You figure you can save $1,500 a year for the first 5 years and $2,200 a year for the next 5 years.  These savings cash flows will start one year from now.  In addition, your family has just given you a $1,000 graduation gift.  If you put the gift now, and your future savings when they start, into an account that pays 8 percent compounded annually, how much will you have accumulated for your trip to the Outback Australia 10 years from now?