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The Telex Company plans to issue $20,000,000 of 10-year bonds at par next June, with semiannual interest payments. The company's current cost of debt is 12% . However, the firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take a short position in U. S. government t-bond futures. See the settlement data below for t-bond futures. (Note: One standard future contract is $100,000) Delivery Month Open High Low Settle Change Open Interest (1) (2) (3) (4) (5) (6) (7) Dec 102'13 102'25 102'15 102'17 +2 489,777 Mar 102'02 102'25 101'01 101'01 -5 105,033 June 101'13 101'15 100'02 100'30 -1 15,002 d. Calculate the implied interest rate based on the current value of the futures position. e. Interest rates increase as expected, by 2 percentage points. Calculate the present value of the futures position based on the rate calculated above plus the 2 points. f. Calculate the gain or loss on the futures position. g. Calculate the overall net gain or loss. h. Is this problem an example of a perfect hedge or a cross hedge? Is it an example of speculation or hedging? Why?
Robin died after suffering a heart attack. She did not have a named beneficiary for her profit sharing plan.
In September of 1995, McDonalds Corporation issued $150 million of Senior Notes due in 2005. The notes were issued at par and bore interest of 6 5/8%. From McDonalds’s perspective, what is the effective after-tax cost of this debt (expressed as an a..
What's the future value of a 12%, 5-year ordinary annuity that pays $700 each year? If this was an annuity due, what would its future value be?
uppose that a borrower is offered a choice between a fixed rate mortgage and a variable rate mortgage. If the borrower expects the inflation rate to increase, which of the rates would be more attractive to the borrower?
A firm cannot pay dividend to its common stock until it has paid dividends to the preferred shareholders, and the company reserves the right to postpone the perferred stock dividend into next year in a bad performance year. This is ______________ of ..
What is the payback period of this investment? Payback period is years. Should Creative Solutions, Inc. go ahead with this project?
Suppose a stock had an initial price of $80 per share, paid a dividend of $.60 per share during the year, and had an ending share price of $72. Compute the percentage total return. What were the dividend yield and the capital gains yield?
Blue Water Systems is analyzing a project with the following cash flows. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not?
The net present value is a measure of profits expressed in today's dollars. The net present value is positive when the required return exceeds the internal rate of return. If the initial cost of a project is increased, the net present value of that p..
Banyan Co.'s common stock currently sells for $43.75 per share. What would be the cost of new equity?
Your company is considering a direct investment project to produce computers in Thailand, for sale in the US market. This will be partially financed by US dollar debt, and partially financed by issuing stock in Thailand. What is the cost of equity ca..
Capital investment: Acme is planning construction of a new loading ramp for its single iron mill.
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