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The Knight and Day Café is contemplating making a $125,000 investment that has a 45% chance of producing a 8% return, a 25% chance of producing an 11% return, a 15% chance of producing a 15% return, a 10% chance of producing a 5% return, and a 5 % chance of producing a 20% return. Calculate the expected return rate.
Jansken Co. has an ROE = .12 and a beta of 1.10. It plans to maintain indefinitely its traditional retention ratio of .65. This year's earnings were $2.50 per share. This year's dividend was jsut paid. The consensus estimate of the coming year's mark..
ABC Corp has the opportunity to invest $1 million now (t=0) and expects after-tax returns of $600,000 in t=1 and $700,000 in t=2. The project will last for two years. The appropriate cost of capital is 12% with all-equity financing, the borrowing rat..
Create a college savings plan for your 3 year-old son. Assume that he will begin college in 15 years. You plan to pay for 4 years of college at $17,000 per year (tuition is due at the beginning of each year). What will it take to fund it via a lump s..
Byrd Corp. 10-year bonds are selling at a quote of 98 on the NASDAQ and you just recieved your first interest check for $55.55. What is the stated rate on this bond?
You are combining a risky asset with an investment in risk-free U.S. Treasury bills with one year to maturity. The U.S. Treasury bills offer a 4 percent rate of return. The risky asset has an expected return of 8 percent and a standard deviation of 2..
Bob is considering acquiring a commercial property for $100,000. He expects the property will generate NOIs of $10,000 in year 1, $11,000 in year 2, $12,000 in year 3 and $12,500 in year 4. He wants you to do a three-year cash flow simulation. At the..
An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,080,000 and will be sold for $1,280,000 at the end of the project. If the tax rate is 35 percent, what is the after tax ..
Thatcher Corporation's bonds will mature in 11 years. The bonds have a face value of $1,000 and an 9% coupon rate, paid semi annually. The price of the bonds is $1,050. The bonds are callable in 5 years at a call price of $1,050. What is their yield ..
If the company decided to take on a large, representing over 40% of their existing capital, project outside of their industry, how would this impact the company’s cost of capital?
_____ are the reserves the Fed requires the bank to hold.
You would like to be holding a protective put position on the stock of Avalon Corporation to lock in a guaranteed minimum value of $50 at year-end. Avalon currently sells for $50. Over the next year, the stock price will increase by 10% or decrease b..
If we incorporate Financial Distress and Bankruptcy Costs and also Taxes, then we have altered the fundamental assumptions of Modigliani and Miller. Explain the relationship between leverage and capital structure under the new assumptions.
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