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Suppose that you intend to buy a house for $200,000. Calculate your leverage ratio for this investment in each of the following situations:
a. You pay the entire $200,000 price in cash.
b. You make a 20% down payment.
c. You make a 10% down payment.
d. You make a 5% down payment. Now assume that at the end of the year, the price of the house has risen to $220,000. Calculate the return on your investment for each of the situations listed above. In your calculations, ignore interest you pay on the mortgage loan and the value of any housing services you receive from owning your home.
The current spot price of a stock is $21, the expected rate of return of the stock is 11%, and the volatility is 12%. The risk-free rate is 5%. Compute the price of a derivative whose payoff in 5 months is ln(S5/12) + 32, where S5/12 is the stock pri..
A stock has an expected return of 12 percent, its beta is 1.70, and the expected return on the market is 9.4 percent. What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places..
How do the products offered to individuals by pension funds and LICOs differ from those of mutual funds? What is the outlook for each of these institutions as a growing share of the U.S. workforce approaches retirement?
Palomar Paper Products purchased land in 1996 for $15,000 cash. The company has held the land since that time. In 2014 Palomar purchased another tract of land for $15,000 cash. Explain how one could adjust the dollar amount reported in the land accou..
Mary is purchasing a home for 294000$. She will finance her mortgage for 15 years with 4% interest. She is paying 20% down payment of the purchase price. Mary's annual taxes are 2564$ and her annual homeowner insurance is 1778$. Find the amount of th..
What is the weighted-average cost of capital for a firm with the following sources of funds and corresponding required rates of return: $5 million common stock at 16%, $500,000 preferred stock at 10%, and $3 million debt at 9%. All amounts are listed..
Rust Pipe Co. was established in 1994. Four years later, the company went public. At that time, Robert Rust, the original owner, decided to establish two classes of stock. What is the percentage of the founder's family votes to Class B votes?
Zoom Café's policy is to write-off debts if the debts haven't been paid for more than 91 days. How much money needs to be written off as bad debt
RockTop Construction expects to pay a $1.10 dividend next year to its common stock holders. In each following year, common stock dividends will grow at 4%. RockTop pays its preferred shareholders a dividend of $2.25 every year. what are the required ..
Before going into year-end closing a company has operating income of $40,000 with a marginal tax rate of 25%. Operating assets are $500,000 and operating liabilities are $200,000. What is the RNOA?
Should a firm pay cash dividends in a year when it raises external common equity. Discuss the pros & cons of various sources of estimates of future earnings and dividend growth rates for a company.
Given the following facts about a project, determine both the accounting break-even level of units sold and the NPV break-even level of units sold.
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