Calculating costs of issuing debt home improvement

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Reference no: EM131905664

1. Calculating Costs of Issuing Debt Home Improvement, Inc. needs to raise $2.60 million to finance plant expansion. In discussions with its investment bank, Home Improvement learns that the bankers recommend a debt issue with a gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 6 percent of the gross proceeds. How many bonds will Home Improvement need to sell in order to receive the $2.60 million they need?

A. 2,766

B. 2,756,000

C. 2,756

D. 2,765,957

2. Under/Over Valued Stock A manager believes his firm will earn a 12.10 percent return next year. His firm has a beta of 1.44, the expected return on the market is 9.4 percent, and the risk-free rate is 4.4 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.

11.60%, over-valued

17.936%, over-valued

11.60%, under-valued

17.936%, under-valued

Reference no: EM131905664

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