Optimal Capital Structure

Zippy Pasta Corporation (ZPC) has a constant growth rate of 7 percent and retains 30% of its earnings. Given various capital structures, which structure is optimal if it maximizes firm value where the debt/total assets ratio is 50%?

Chip Co. is trying to determine its optimal capital structure. Assuming a constant growth rate of 2 percent, which capital structure maximizes the company's stock price where debt is 25% and the equity is 75%?

Little John Industries stock information is as follows: Sold for $1.90 on January 1 and ended the year at $2.50. In addition, the stock paid dividends of $0.20 pee share. What is the dividend yield (DY), capital gain yield (CGY), and the total rate of return (TR) for the year?

Mercury Inc. has a real risk-free rate of 3 percent and a market risk premium of 5 percent. If investors expect a 5 percent rate of inflation in the future, and Mercury has a beta of 2.0, calculate the required rate of return for Mercury Inc.. $_______%

Partridge Plastic's stock has an estimated beta of 1.4, and its required rate of return is 13 percent. Cleaver Motors' stock has a beta of 0.8, and the risk-free rate is 6 percent. What is the required rate of return on Cleaver Motors' stock?

If a stock has a required rate of return of 13.75 percent, the risk-free rate is 5 percent and the market risk premium is 7 percent, then its beta is 1.5.

A stock has an expected return of 12.25 percent. The beta of the stock is 1.15, and the risk-free rate is 5 percent. What is the market risk premium? $______%

A portfolio is entirely invested in Buzz's Bauxite Boring Equity, which is expected to return 16%, and Zum's Inc. bonds, which are expected to return 8%. Sixty percent of the funds are invested in Buzz's and the rest in Zum's. What is the expected return on the portfolio?

You have been managing a $1 million portfolio where the portfolio has a beta of 1.6 and a required rate of return of 14 percent. The current risk-free rate is 6 percent. Assume that you receive another $200,000. If you invest the money in a stock with a beta of 0.6, what will be the required return on your $1.2 million portfolio? $______%

You are an investor in common stocks, and you currently hold a well-diversified portfolio with an expected return of 12 percent, a beta of 1.2, and a total value of $9,000. You plan to increase your portfolio by buying 100 shares of SMU Company at $10 a share. SMU Company has an expected return of 20 percent with a beta of 2.0. What will be the expected return and the beta of your portfolio after you purchase the new stock?

An investor is forming a portfolio by investing $50,000 in stock A, which has a beta of 1.50, and $25,000 in stock B, which has a beta of 0.90. The return on the market is equal to 6 percent, and Treasury bonds have a yield of 4 percent. The required rate of return on the investor's portfolio is 5.6%.

You have a $1,200 portfolio, which is invested in two stocks and one risk-free asset. $300 is invested in stock A, which has a beta of 1.1. Stock B has a beta of .80. How much should be invested in the risk-free asset if you want to achieve a portfolio beta of .555? $_____

What is the present value of a security which promises to pay you $3,000 in 15 years while assuming you can earn 9 percent if you were to invest in other securities of equal risk?

What is the future value of an 8-year ordinary annuity which promises to pay you $300 each year, given that the rate of interest is 6 percent? $_______

Your parents are planning to retire in 15 years. They currently have $247,000, and they would like to have $900,000 when they retire. Assuming they save no more money, what annual rate of interest would they have to earn on their $247,000 to reach their goal?

Your broker offers to sell you a note for $ 47,505.05 that will pay you $5,000 per year for 25 years. If you buy that note, the interest rate (to the closest percent) will you be earning is 8.42%.

If you borrow $34,000 in student loans at an interest rate of 6.5 percent, compounded annually, and you repay $4,000 per year, how long, to the nearest year, will it take you to repay the loan? ________ years

SG Trucking is financing a new truck with a loan of $25,000 to be repaid in 10 annual end-of-year installments of $3,895.50. What annual interest rate is the company paying?

You are considering buying a new car with a tag price of $15,000, and you have $2,000 to put toward a down payment. If you can negotiate a nominal annual interest rate of 10 percent and you wish to pay for the car over a 5-year period, what are your monthly car payments? $_______

You are thinking about buying a car, and a local bank is willing to lend you $18,000 to buy the car. Under the terms of the loan, it will be fully amortized over 6 years (72 months), and the nominal rate of interest will be 15 percent, with interest paid monthly. What would be the monthly payment on the loan?