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Consider a firm that currently has debt with face value of $1000 that will come due in one year and assets that are projected to be worth $900 in one year.
Suppose the firm has the opportunity to invest in a new project requiring an immediate investment of $100 and offering a return of 50% in one year.
Suppose the only way to get the $100 for the initial investment is for the existing equity holders to contribute it.
Assume the required rate of return for this project is less than 50%, should the firm invest in the project?
Compare the value of the firm, the debt and equity (i) without a change to strategy and (ii) with a change to strategy (assume 0% discount rate). Will the manager invest in the project if her goal is to maximize shareholders’ value?
A small sheet metal company has estimated that its fuel costs for the next 5 years will have a present worth of $70,000. The company expects the cost next year to be $12,000, after which time the cost will increase according to a uniform gradient. At..
Calculate collection period rate
The super prize in a contest is $10 million. This prize will be paid out in equal yearly payments over the next 20 years. If the prize money is guaranteed by AAA bonds yielding 3%and is placed into an escrow account when the contest is announced 1 ye..
your company’s annual capital budget meeting to present an analysis of the strengths and weaknesses of the following capital budgeting selection methodologies.
Assume you are in the 15 percent tax bracket and purchase a 6.8 percent, tax-exempt municipal bond. Calculate the tax-equivalent yield for this investment.
Which of the following is not a characteristic of price takers?
Accounts payable and accruals 65, accounts receivable 65, accumulated depreciation (175), What is Iris Inc's total assets.
Suzan is considering buying a home for $394,000. what will be the principal payment for payment number 60?"
A European call option allows one to purchase 2 shares of stock B with 1 share of stock A at the end of a year. A European put option which allows one to sell 2 shares of stock B for 1 share of stock A costs 11.5. Determine the premium of the Europea..
You buy a stock today for $60. The price of the stock at the end of the first year is normally distributed with a mean of 60+0.97 and a standard deviation of 4.
Calculate the payback period of this project. Calculate the net present value of this project.
The YTM on a bond is the interest rate you earn on your investment if interest rates don't change.
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