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There is a 40 percent chance that the interest rate in one year will be 12 percent, and a 60 per-cent chance that the interest rate will be 7 percent. If the current interest rate is 10 percent, wha
Fama's Llamas has a WACC of 9.80 percent. The company's cost of equity is 12.2 percent, and its cost of debt is 7.4 percent. The tax rate is 40 percent. What is Fama's target debt-equity ratio?
Expected annual sales are $625,000 with annual costs of $480,000. The project will last for five years. The company's tax rate is 35% and the required rate of return is 14%. If the equipment is not
The stock currently sells for $40.00 a share, has an expected dividend in the coming year of $2.00, and has an expected constant growth rate of 6.00%. What is the estimated floor price of the conver
A cconvertible bond is currently selling for $945. It is convertible into 15 shares of common stock that presently sell for $57 per share. What is the conversion premium?
A call option on this stock has a strike price of $103 and expiration is in 2 months. The interest rate is quoted as 6% compounded monthly. Find the value of this call using a binomial lattice with
The existing bulldozer has a book value equal to $100,000. what will be the net after-tax cash flow that is generated from the disposal of the existing bulldozer? Powerbuilt's marginal tax-rate is 3
KL Airlines paid an annual dividend of $1.42 a share last month. The company is planning on paying $1.50, $1.75, and $1.80 a share over the next 3 years, respectively.
You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain ignoring transactions cost?
Would your evaluation be different after learning about various capital budgeting criteria? Give an example of how you would apply various capital budgeting criteria to your decision. What would you c
Your firm needs to raise $10 million. Assuming that flotation costs are expected to be $15 per share, and that the market price of the stock is $120, how many shares would have to be issued? What is
What are some of the characteristics of a firm with a long operating cycle?
What is firms cost to equity and weighted average cost of capital at this time? According to pure MM with-tax model, what is the optimal level of debt?
Funds raised from the bonds will be used to repurchase outstanding shares. The effective tax rate is 25% at the corporate level. According to the MM theory, what is the initial change in equity valu
The $8 million is represented by 8,000 different $1,000 bonds. Each $1,000 bond pays 3% interest. The conversion ratio is 30. The firm is in a 30% tax bracket. What is Vickrey's diluted earnings per
Davisson Hospital is tax exempt and it needs a NMR machine, which is expected to generate revenue of $60,000 annually. Its life will be either 4 years (probability 70%) or 5 years (probability 30%).
Straight line depreciation was used to depreciate the rental real estate. The rental properties will be sold at a substantial loss, and the development property will be sold at a substantial gain. W
You are given the following information for Eastern Valley Inc. Calculate WACC
The operating cycle is the period from inventory purchase until the receipt of cash. Different company characteristics generally define the type of operating cycle that a firm experiences. Five diff
Define the Internal Rate of Return (IRR) method in capital budgeting and state the IRR Decision rule.
Continuing from previous question, graph the total net profit (i.e.,cumulative profit less net intial cost, ignoring time value considerations)relationship using the June USD/GBP rate on the horizo
The convention in Zanadu financial markets is that the market yield and coupon rate are quoted as nominal rates. What is the market value of the bonds? Show all working.
The firm has a debt issue outstanding with 10 years to maturity that is quoted at 97 percent of face value. The issue makes semiannual payments and has an embedded cost of 11 percent annually. Compa
Given the nature of corporate financing and investment decisions, that focus on long-term operations is appropriate. In periods of rapid change where long-term outlooks are uncertain or in flux, a
To maintain the current capital structure, how much of the capital budget should be financed by external equity? Determine the cost of each individual component. Compute the WMCC.