FIN 512 Chapter 4: FIN512 - Chapter 4 – Homeowner’s Insurance

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fuchsiasea-lion76

8 Dec 2014

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Chapter 4 homeowner"s insurance: a homeowners" insurance policy is designed to provide an individual with protection from a financial loss to their home. 3 common levels of coverage: basic or standard coverage these policies cover named/listed perils like fire, falling objects, vandalism, etc, broad coverage: which includes all risks to your building, and named perils for the contents of your home, policies cover two types of losses, comprehensive coverage: which covers the building and the contents for all defined risks, direct losses: damage/destruction of building and personal property (or loss of property if theft is covered, indirect losses: loss of rental income need to rent other accom. while home is being repaired.

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A firm has a Capital Structure as follows: Market Value of their debt Is $2,000,000, Preferred stock is $1,000,000. There are 500,000 shares of stock outstanding, with a market value of $20 per share. The preferred stock price is $50 and pays a $4 dividend. The common stock sells for $20 and pays a $1.00 dividend that is expected to grow by 2% per year. The bonds currently sell for $818, and the coupon rate of 5%. The bonds will mature in 10 years. The firmâs tax rate is 40%. The company generates $10,000,000 is sales, expenses are $6,000,000. The initial investment of $1,000,000 is depreciated straight-line over 10 years. What is the firmâs Market Capitalization? _________________. Chapter 4 What is the cost of the preferred stock? ________. Chapter 7 What is the cost of the common stock? ________. Chapter 7 What is the cost of the bonds? ________ . Chapter 6 What is the firmâs WACC? __________ . Chapter 13 What is the OCF____________? Chapter 9 Based on their Initial investment $1,000,000, what is the NPV of this 5- year project using the firmâs WACC that you calculated in #5 ______________? Chapter 8 Based on their Initial investment $1,000,000, what is the IRR of this 5- year project using the firmâs WACC, that you calculated in #5 ______________? Chapter 8 Would you invest in this project? __________. Chapter 8 Explain why_________________. Chapter 8

tanweasel398

Beside each question, is a chapter reference if you need to review. I will give partial credit if you get the wrong answer but have shown the correct formula. Your answer must be submitted through blackboard prior to the due date to receive proper credit. If you use excel, you may submit the excel spreadsheet.

A firm has a Capital Structure as follows: Market Value of their debt Is $2,000,000, the Preferred stock is $1,000,000. There are 500,000 shares of stock outstanding, with a market value of $20 per share.

The preferred stock price is $50 and pays a $4 dividend. The common stock sells for $20 and pays a $1.00 dividend that is expected to grow by 2% per year. The bonds currently sell for $818, and the coupon rate of 5%. The bonds will mature in 10 years. The firmâs tax rate is 40%.

The company generates $10,000,000 is sales, expenses are $6,000,000. The initial investment of $1,000,000 is depreciated straight-line over 10 years.

What is the firmâs Market Capitalization? _________________. Chapter 4

What is the cost of the preferred stock? ________. Chapter 7

What is the cost of the common stock? ________. Chapter 7

What is the cost of the bonds? ________ . Chapter 6

What is the firmâs WACC? __________ . Chapter 13

What is the OCF____________? Chapter 9

Based on their Initial investment $1,000,000, what is the NPV of this 5- year project using the firmâs WACC that you calculated in #5 ______________? Chapter 8

Based on their Initial investment $1,000,000, what is the IRR of this 5- year project using the firmâs WACC, that you calculated in #5 ______________? Chapter 8

Would you invest in this project? __________. Chapter 8

Explain why_________________. Chapter 8

skycoyote382

FIN 512 Chapter 4: FIN512 - Chapter 4 – Homeowner’s Insurance

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