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Derek Incorporated recently developed an electric car which contains robot technology for self-driving. The owner was original employed by Tesla and was previously sued for violating confidentiality clauses specific to development of Tesla; however, that was resolved out-of-court. Derek Inc. needs to raise $52 million in common stock. Underwriters (have informed the firm’s management that they must price the new issue to the public at $26.50 per share because of signaling effects. The underwriters’ compensation will be 7% of the issue price. The firm will also incur expenses in the amount of $325,000. How many shares must the firm sell to net $12 million after underwriting and flotation expenses?
Using the P/E ratio approach to valuation, calculate the value of a share of stock.
You have $16,000 to invest in a mutual fund with a NAV = $45. You choose a fund with a 4% front load, a 1% management fee, and a 0.25% 12b-1 fee. Assume that the management and 12b-1 fees are charged on year-end assets. The gross annual return on the..
Investment company is instructed to minimize the risk for an investor with $1,200,000 to invest. Stock funds cost $50 with a return of 10%. Money market fund costs $100 and annual return of 4%. Investor wants to earn at least $60,000.
Folic Acid Inc., has $20 million in earnings, pays $2.75 million in interest to bondholders, and $1.80 million in dividends to preferred shareholders. What are the common shareholders’ residual claims to earnings? What are the common shareholders’ le..
Tyler Trucks stock has an annual return mean and standard deviation of 14 percent and 43 percent, respectively. Michael Moped Manufacturing stock has an annual return mean and standard deviation of 10 percent and 69 percent, respectively. Your portfo..
Suppose you are going to receive $17,500 per year for five years. The appropriate interest rate is 10 percent. What is the present value of the payments if they are in the form of an ordinary annuity? What is the future value if the payments are an a..
What equal series of payments must be paid into a sinking fund in order to accumulate each given amount?
Explain the three different forms of the efficient markets hypothesis and discuss some of the implications of efficiency market theory for corporate financial policy.
Sensitivity analysis James Secretarial Services is considering the purchase of one of two new personal computers, P and Q. Both are expected to provide benefits over a 10-year period, and each has a required investment of $3,000.
The goal of this exercise is to explore the trade-offs associated with the NPV of a solar collector project. The QFM for this project is: Development costs are $100K/qtr for Y1. Ramp-Up costs are 10K for Y1 Q4, 50K for Y2 Q1, and 5K for Y2 Q2. How wo..
E-Eyes.com just issued some new preferred stock. The issue will pay an annual dividend of $29 in perpetuity, beginning 18 years from now. If the market requires a return of 4.3 percent on this investment, how much does a share of preferred stock cost..
Your firm is contemplating the purchase of a new $575,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. You will save $265,000 before..
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