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A company currently has a debt to total assets ratio of 35% and the beta of the company is 1.05. The company has a current cost of debt of 7.8% and a tax rate of 38%. The current risk-free rate is 4.5% and the market risk premium (the difference between the return on the market and the risk-free rate of return) is 4%. Companies with similar risk characteristics and 40% debt can borrow at 9.5%. Would the company lower its WACC if it increased its debt to 40%?
The price of a European put with strike 50 and maturity in 100 days is 2. Does the "No arbitrage principle" hold? If not, identify an arbitrage strategy.
Calculate the cost of common equity from retained earnings, using the CAMP method.
Live Forever Life Insurance Co. is selling a perpetuity contract that pays $2,000 monthly. What is the monthly return on this investment vehicle?
Use the flow to equity approach to determine the value of the company’s equity. What is the total value of the company?
An analyst is evaluating securities in a developing nation where the inflation rate is very high.
Immediately after your grandparents make the deposit on your 18th birthday, the amount of money in your savings account will be closest to?
Suppose that, in each period, the cost of a security either goes up by a factor of u = 2 or down by a factor d = 1/2.
The six-month zero rate is 8% with semiannual compounding. The price of a one-year bond that provides a coupon of 6% per annum semiannually is 97. What is the one-year continuously compounded zero rate? A portfolio is worth $24,000,000. The futures p..
A 8-year bond has a par value of $1,000 and a coupon rate of 5 percent. During the first six months after the bond was Issued, the inflation rate was 1.3 percent. By how much does the principal of the bond increase? What is the coupon payment after s..
What is the proper cash flow amount to use as the initial investment in fi xed assets when evaluating this project? Why?
You are considering a project with the following data: IRR = 8.7 percent; PI = .98; NPV = -$393; Payback period = 2.44 years. Which one of the following statements is correct given this information? This project should be accepted based on the profit..
How do regional economic alliances impact the global economy, Be clear and concise in your answer, using business terms you learned in this course.
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