Hartford Mining has 50 million shares that are currently trading for $4 per share and $200 million
Question:
Hartford Mining has 50 million shares that are currently trading for $4 per share and $200 million worth of debt. The debt is risk free and has an interest rate of 5%, and the expected return of Hartford stock is 11%. Suppose a mining strike causes the price of Hartford stock to fall 25% to $3 per share. The value of the risk-free debt is unchanged. Assuming there are no taxes and the risk (unlevered beta) of Hartford’s assets is unchanged, what happens to Hartford’s equity cost of capital?
Step by Step Answer:
Debt 130 Equity 350 Debt equity r...View the full answer
Related Video
The Dupont analysis is an expanded return on equity formula, calculated by multiplying the net profit margin by the asset turnover by the equity multiplier. The DuPont analysis is also known as the DuPont identity or DuPont model.This Video will guide on how to calculate return on Equity and estimate profitability of shareholders using DuPont Analysis.
Students also viewed these Business questions
-
Currently the risk free return is 3 present and expected market of return 10 present what is the expected return of the following there stock portfolio Amount invested rat 400,000 ............... 1.5...
-
Using an interest rate of 5 percent, which figure has the largest present value? a. $5,000 b. $5,050 to be received two years from now c. $5,075 to be received three years from now d. $5,500 to be...
-
Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate of return on an average stock is 13%, and the risk-free rate is 7%. By how much does the required return on the riskier stock...
-
What risks accompany a standby credit letter for (a) the issuer and (b) the beneficiary?
-
Although many employees enjoy the flexibility of working lots of part-time jobs or working for a series of employers on a temporary basis, it comes at a cost: Such employees often make low wages,...
-
1. Where does crowd-funding fit in the capital lifecycle of business development? 2. Is crowd-funding really all that unique? What does it offer that traditional funding channels and institutions do...
-
For the following set of scores, calculate the Pearson correlation coefficient and interpret the outcome. Budget Increase Number of Clients Served 7% 3% 11% 14% 5% 13% 7% 26% 2% 8%
-
The controller of Dousmann Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs. Instructions (a) Determine the fixed- and...
-
In 2023, Laureen is currently single. She paid $2,440 of qualified tuition and related expenses for each of her twin daughters Sheri and Meri to attend State University as freshmen ($2,440 each, for...
-
The following information relates to Yansheng Real Estate. Oct. 1 Biao Yansheng begins business as a real estate agent with a cash investment of HK$17,000. 2 Hires a part-time administrative...
-
Compute the cost of levered equity (r E ) for Home Depot using their current market debt-to-equity ratio and Eq. 14.5 . (14.5) Cost of Capital of Levered Equity D TE = TU + (ru - TD) E
-
Suppose Microsoft has 8.75 billion shares outstanding and pays a marginal corporate tax rate of 21%. If Microsoft announces that it will pay out $50 billion in cash to investors through a combination...
-
In addition to financial statements, what are some other ways to disclose financial information to external users?
-
Can a monetary fine constitute sufficient punishment? Should the amount of a fine be based on a defendants wealth? What thoughts or justifications for retribution do you agree with? What do you...
-
Evaluate the function f(x) = x-8x+2 at the given values of the independent variable a. f(7) b. f(x+9) c. f(-x)
-
Explain the role of device drivers in an operating system. How do operating systems ensure compatibility and stability across different hardware platforms with varying device driver implementations ?
-
Evaluate (n+2n). .
-
How do modern operating systems manage concurrency to ensure data integrity and avoid deadlocks? Discuss the role of semaphores, mutexes, and monitors in this context .
-
Ares Capital Corporation (ARCC) announced that it was acquiring Allied Capital (ALD). The terms of the acquisition specified that one share of ALD would become 0.325 share of ARCC. Prior to the...
-
Players A, B, and C toss a fair coin in order. The first to throw a head wins. What are their respective chances of winning?
-
Assume that the prime rate is 8% APR, compounded quarterly. How much dollar savings in interest did Treadwater (Problem 12) and Magna (Problem 13) achieve by accessing the commercial paper market?
-
Suppose your employer offers you a choice between a $5000 bonus and 100 shares of the companys stock. Whichever one you choose will be awarded today. The stock is currently trading for $63 per share....
-
You have just received a windfall from an investment you made in a friends business. She will be paying you $10,000 at the end of this year, $20,000 at the end of the following year, and $30,000 at...
-
The Step Company has the following Information for the year just ended: Sales in units Budget 15,000 Actual 14,000 Sales $150,000 $147,000 Less: Variable Expenses 90,000 82,600 Contribution Margin $...
-
Question 2 (2 marks) The year level coordinators for Years 7 to 11 at the school are Amy (A), Brian (B), Claire (C), Daisy (D) and Ellie (E). A faulty telephone system means that some of these...
-
On a certain farm alfalfa yields have been 4.3, 7.2, 5.6, and 3.6 tons per acre in the last 4 years. What is the expected value for the farm's alfalfa yield, if each past result is given equal weight...
Study smarter with the SolutionInn App