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Erna Corp. has 6 million shares of common stock outstanding. The current share price is $85, and the book value per share is $8. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $65 million, has a coupon rate of 8 percent, and sells for 95 percent of par. The second issue has a face value of $40 million, has a coupon rate of 9 percent, and sells for 108 percent of par. The first issue matures in 23 years, the second in 5 years. Suppose the most recent dividend was $5.70 and the dividend growth rate is 4 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 38 percent. What is the company’s WACC?
Your next assignment is to assume that $10,000 was invested in the stock of General Medical Corporation with the intention of selling after one year. The stock pays no dividends, so the entire return will be based on the price of the stock when sold...
Atlantis Fisheries issues zero coupon bonds on the market at a price of $492 per bond. These are callable in 9 years at a call price of $550. Using semiannual compounding, what is the yield to call for these bonds?
Tigger's $3.25 (dividend) preferred stock issue is paid annually at the end of the year. Determine the value of this preferred stock to an investor who requires a 12 percent rate of return.
Consider the auction of 2-year Floating Rate Notes in April 2014. As we saw in class, the notes are priced at par and investors receive face value at maturity. Coupon interest payments are indexed to the 13-week T-bill and are made quarterly (July, O..
Microwave Oven Programming, Inc is considering the construction of a new plant. The plant will have an initial cash outlay of $7.1 million (= -$6.1 million), and will produce cash flows of $2.3 million at the end of year one, $4.5 million at the end ..
What is the Black-Scholes delta of a put if the delta of a call on the same stock with the same strike price and maturity is +0.6? Assume that the stock does not pay dividends.
Why did Microsoft decide in 2004 to double its cash dividend and buy back up to $30 billion of the company's stock over the next four years?
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. Assume that the co..
What is a Financial Intermediary? What are some of the financial products that we as consumers can use from Financial Intermediaries?
A call option on the stock of Bedrock Boulders has a market price of $6. The stock sells for $29 a share, and the option has a strike price of $25 a share. What is the exercise value of the call option?
Market value-weighted indexes are true market portfolio indexes; they represent movements in the market. Dow Jones 30 Industrial Average is an example of Market value-weighted index. It is possible to get some of the benefits of international diversi..
A Treasury bond with the longest maturity (30 years) has an ask price quoted at 97:06. The coupon rate is 2.70 percent, paid semi annually. What is the yield to maturity of this bond?
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