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1. Risk free rate is 3%. Equity risk premium is 5%. Beta is 2. Using the Capital Asset Pricing Model, compute the cost of equity capital.
2. Earnings Before Interest and Taxes is 200. Depreciation is 50. Capital Expenditure is 55. Net additions to Working Capital is 20. Taxes are 25. Compute Cash Flow From Assets (CFFA).
3. If Net Present Value (NPV) is greater than Zero, you:
a. Accept the project.
b. Reject the project.
c. Flip a coin.
d. Sleep on it.
Is your expected British pound amount of the receivables in one year from hedging higher, lower, or the same as your expected British pound amount of the receivables without hedging? Explain.
You are valuing an investment that will pay you $26,000 per year for the first 9 years, $34,000 per year for the next 11 years, and $47,000 year the following 14 years (all payments are the end of each year). Another similar risk investment alternati..
You are an investment banker trying to value Dell, a private company. You have forecasted Dell’s free cash flows, but need to compute its WACC in order to value the firm. Unfortunately Dell is private and so it does not have stock data, so you cannot..
What is the margin of safety, assuming sales total $60,000? What is the breakeven level in pillows, assuming variable costs increase by 20%?
A firm should set its growth target equal to its sustainable growth rate. The sustainable growth concept can highlight tensions associated with "competing" objectives within the firm. Generating a higher profit margin provides fuel for a higher susta..
Calculate standard deviation, variance, covariance, and correlation between assets II and III and explain portfolio risk in terms of these two assets.
A one-year U.S. Treasury security has a nominal interest rate of 2.25 percent. If the expected real rate of interest is 1.50 percent, what is the expected annual inflation rate?
You are attempting to value a call option with an exercise price of $105 and 1 year to expiration. The underlying stock pays no dividends, its current price is $105, and you believe it has a 50% chance of increasing to $122 and a 50% chance of decrea..
Trahan Lumber Company hired you to help estimate its cost of common equity. You obtained the following data: D1 = $1.25; P0 = $27.50; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock?
Rise Against Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 205,000 shares of stock outstanding. Under Plan II, there would be 155,000 shares o..
They pay on debt. Each has $19 million in invested capital, has $4.75 million of EBIT, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 60% and pays 12% interest on its debt, whereas LL has a 40% debt..
What is the price of a perpetual bond with a par value of $1,000.00 and a coupon rate of 7.25% (semi annual coupon)? The bond has a nominal yield to maturity of 6.90%.
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