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Suppose Reliant's bonds have identical coupon rates of 8.5% but that one issue matures in 3 years, one in 9 years, and the third in 12 years. If the yield to maturity for all three bonds is 8%, what
Jasper Inc has not paid dividends. They are considering paying a common stock dividend of $0.75 per share next year.
What is the realized rate of return on your investment? The firm does far better than expected and bondholders receive all of the promised interest and principal payments. What is the realized rate
How does a firm's tax rate affect its cost of capital? What is the effect of the flotation costs associated with a new security issue? Discuss.
Describe the replicating portfolio by demonstrating that the payoff from your portfolio is identical to that of the call option no matter what the stock price is on expiration day a year from now.
6-month Canadian securities have an annualized return of 6% (and thus a 6-month periodic return of 3%). 6-month U.S. securities have an annualized return of 6.5% and a periodic return of 3.25%. If i
Determine the GFS WACC from the balance sheet as of 12/31/2009 and discuss the use of multiple valuation techniques. Calculate NPV of future cash flows for each of the alternatives; where there is a
Discuss which of the functions that the money and capital markets perform are important to Jim Jenkins as he considers various options for purchasing the HDTV.
The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
How does inflation distort ratio analysis comparisons for one company over time (trend analysis) and for different companies that are being compared? Are only balance sheet items or both balance she
Explain the main goal a financial manager is trying to achieve and the types of decision financial manager makes. Discuss what you can learn from management's discussion or the notes to the four main
At the end of 2004, Nico collected a dividend of $4.00 per share and sold his stock for $18.00 per share. What was Nico's realized holding period return? What was Nico's compound annual rate of retu
How much higher would WACC be if Omega used no debt at all? Hint: For this problem you can assume that the firm's overall beta (A) is not affected by its capital structure or the taxes saved becaus
Suppose further that the MRP on a 10-year T-bond is 0.90%, that no MRP is required on a TIPS, and that no liquidity premium is required on any T bond. Given this information, what is the expected ra
Prepare the current assets section of the balance sheet for Henley Company. Assume that in addition to the receivables it has cash of $90,000, merchandise inventory of $130,000, and prepaid expenses
Explain why identifying and valuing the real options can help managers make better investment decisions.
Then 7% and remain constant thereafter. The company stock has a beta equal to 1.2, the risk free rate is 7.5% and the market risk premium is 4%. What is your estimate of stock's current price?
The project will require $13000 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 6 percent and a tax rate o
Gehr's Gears, Inc., has bonds outstanding that mature in 14 years and 3 months from today. The bonds have an annual coupon rate of 15% and pay interest every six months. The bonds are currently sell
Tapley's tax rate is 30 percent, and its current stock price is $88 per share. If the firm has an unlimited number of projects which will earn a 10.25 percent return, what is the maximum capital bud
Stephens Security has two financing alternatives: (1) A publicly placed $50 million bond issue. Issuance costs are $1 million, the bond has a 9% coupon paid semiannually, and the bond has a 20-year
Etsitty Arts, Inc., a leading producer of fine cast silver jewelry, is considering the purchase of new casting equipment that will allow it to expand the product line into award plaques.
What is the NPV of this investment if the cost of capital is 6%? Should the firm undertake the project? Repeat the analysis for discount rates of 2% and 12%. How many IRRs does this investment oppor
Explain the difference between Cost of Capital, MARR ,and Internal Rate of Return. Include examples.