Question

Hollister & Hollister (H&H) is considering a new project. The project will require $492,000 for new...

Hollister & Hollister (H&H) is considering a new project. The project will require $492,000 for new fixed assets, $196,000 for additional inventory, and $31,000 for additional accounts receivable. Short-term debt (accounts payable/notes payable) is expected to increase by $151,000. The project has a 4-year life. The fixed assets will be depreciated under the three-year MACRS schedule to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 18% of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $929,000 with costs equal to 55% of revenues. H&H’s corporate tax rate is 32%.

H&H has 29,600 bonds outstanding with a 6.49% coupon rate, paid semi-annually, and 17 years left until maturity. These bonds are currently selling at 98% of par. They also have 1.9 million common shares outstanding that are currently selling at $9.55/share. H&H recently paid a dividend in the amount of $1.54, and dividends are expected to grow at a constant 2.9%.

What is the cost of equity for H&H? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations).

What is the pre-tax cost of debt for H&H? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations).

What is the weighted average cost of capital for H&H? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations).

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Hollister & Hollister (H&H) is considering a new project. The project will require $522,000 for new...
Hollister & Hollister (H&H) is considering a new project. The project will require $522,000 for new fixed assets, $218,000 for additional inventory, and $39,000 for additional accounts receivable. Short-term debt (accounts payable/notes payable) is expected to increase by $165,000. The project has a 4-year life. The fixed assets will be depreciated under the three-year MACRS schedule to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for...
Hollister & Hollister (H&H) is considering a new project. The project will require $522,000 for new...
Hollister & Hollister (H&H) is considering a new project. The project will require $522,000 for new fixed assets, $218,000 for additional inventory, and $39,000 for additional accounts receivable. Short-term debt (accounts payable/notes payable) is expected to increase by $165,000. The project has a 4-year life. The fixed assets will be depreciated under the three-year MACRS schedule to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for...
XYZ Corp. is considering a new project. The project will require $324517 for new fixed assets,...
XYZ Corp. is considering a new project. The project will require $324517 for new fixed assets, $145183 for additional inventory and $44552 for additional accounts receivable. Short-term debt is expected to increase by $96963 and long-term debt is expected to increase by $302719. The project has a 5-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for...
Hollister & Hollister is considering a new project. The project will require $522,000 for new fixed...
Hollister & Hollister is considering a new project. The project will require $522,000 for new fixed assets, $218,000 for additional inventory, and $39,000 for additional accounts receivable. Short-term debt is expected to increase by $165,000. The project has a 6-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 20 percent of their original cost. The net...
Tarrasa Mining Corporation has 7.8 million shares of common stock outstanding and 210,000 7.1% semiannual bonds...
Tarrasa Mining Corporation has 7.8 million shares of common stock outstanding and 210,000 7.1% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $29 per share and has a beta of 1.4. The bonds have 22 years to maturity and sell for 105% of par. The market risk premium is 6.5%, T-bills are yielding 3%, and Tarrasa Mining's tax rate is 40%. What is the firm's market value weight of equity? (Report answer in percentage terms...
Calculate the internal rate of return for the two following projects: Year Project A Project B...
Calculate the internal rate of return for the two following projects: Year Project A Project B 0 $-4920 $-3115 1 1780 1145 2 2915 1405 3 2125 1755 What is the IRR of project A? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations) What is the IRR of project B? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations)
Tarrasa Mining Corporation has 11.2 million shares of common stock outstanding and 205,000 5.9% semiannual bonds...
Tarrasa Mining Corporation has 11.2 million shares of common stock outstanding and 205,000 5.9% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $37 per share and has a beta of 0.8. The bonds have 12 years to maturity and sell for 91% of par. The market risk premium is 5.5%, T-bills are yielding 4%, and Tarrasa Mining's tax rate is 30%. What is the firm's market value weight of equity? (Report answer in percentage terms...
Margarite's Enterprises is considering a new project. The project will require $325,000 for new fixed assets,...
Margarite's Enterprises is considering a new project. The project will require $325,000 for new fixed assets, $160,000 for additional inventory and $35,000 for additional accounts receivable. Short-term debt is expected to increase by $100,000 and long-term debt is expected to increase by $300,000. The project has a 5-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for...
Tarrasa Mining Corporation has 11.2 million shares of common stock outstanding and 205,000 5.9% semiannual bonds...
Tarrasa Mining Corporation has 11.2 million shares of common stock outstanding and 205,000 5.9% semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $37 per share and has a beta of 0.8. The bonds have 12 years to maturity and sell for 91% of par. The market risk premium is 5.5%, T-bills are yielding 4%, and Tarrasa Mining's tax rate is 30%. What is the firm's market value weight of equity? 68.96 (Report answer in percentage...
Ausel’s is considering a ten-year project that will require $850,000 for new fixed assets that will...
Ausel’s is considering a ten-year project that will require $850,000 for new fixed assets that will be depreciated straight-line to a zero book value over the ten years. At the end of the project, the fixed assets can be sold for 15 percent of their original cost. The project is expected to generate annual sales of $928,000 and costs of $721,000. The tax rate is 35 percent and the required rate of return is 14.6 percent. What is the net...