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Laura Drake wishes to estimate the value of an asset expected to provide inflows of $4,800 per year at the end of years 1 through 4 and $28,388 at the end of year 5. Her research indicates that she must earn 11% on low-risk assets, 14% on average-risk assets, and 23% on high-risk assets. A. Determine what is the most Laura should pay for the asset if it is classified as (1) low-risk, (2) average-risk, and (3) high-risk B. Suppose Laura is unable to assess the risk of the asset and wants to be certain she's making a good deal. On the basis of your findings in part a, what is the most she should pay? Why? C. All else being the same, what effect does increasing risk have on the value of an asset? Explain in light of your findings in part a.
Look up Amazon (AMZN) and Ali Baba Group (BABA) stocks on yahoo finance and answer the following. Which one is more liquid? Explain. What is the enterprise value for both companies? Luke wants to own enough stock of Amazon to be able to control their..
Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 10%. The company's weighted average cost of ..
Zane Corporation has an inventory conversion period of 56 days, an average collection period of 36 days, and a payables deferral period of 31 days. Assume 365 days in year for your calculations. What is the length of the cash conversion cycle? How ma..
Break-even EBIT (with and without taxes). Alpha company is looking at two different capital structures, one an all-equity firm and other a levered firm with $2.52 million of debt financing at 7% interest. The all-equity firm will have a value of $8.4..
An investor owns $3,000 of Adobe Systems stock, $4,000 of Dow Chemical, and $4,000 of Office Depot. What are the portfolio weights of each stock?
What is the correct formula for calculating the cost of capital? What is the correct formula for calculating the cost of capital?
If you determine that the appropriate risk premium is 6.74% and you observe that the risk-free rate, RF, is currently 5.25%, - what is the firm's current required return, rAzure?
A bond portfolio is worth $24,000,000 today. The futures price for a Treasury note futures contract is $110,000 and each contract is for the delivery of bonds with a face value of $100,000. How many contracts are necessary for hedging the bond portfo..
Bond P is a premium bond with a 8 percent coupon. Bond D is a 3 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 5 percent, and have eight years to maturity. What is the current yield for bond P and ..
Storico Co. just paid a dividend of $1.90 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent divid..
Letang Corporation expects an EBIT of $23,250 every year forever. The company currently has no debt, and its cost of equity is 15 percent. The company can borrow at 8.5 percent and the corporate tax rate is 38. Requirement 1: What is the current valu..
Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 25-year annuity is $1.9 million.
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