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It is commonly understood that the cost of financing a business’s asset purchases with debt is cheaper than financing those purchases with equity. Why is debt financing generally cheaper than equity financing? Are there circumstances in which the cost of debt financing would exceed the cost of equity financing? If so, when? What are the factors that affect what sources of finance your own organization uses?
Stock in Dragula Industries has a beta of 1.5. The market risk premium is 6 percent, and T-bills are currently yielding 4.70 percent. The company’s most recent dividend was $1.90 per share, and dividends are expected to grow at a 7.0 percent annual r..
You’ve collected the following information from your favorite financial website. Stock (Div) SIR Company 2.40 High 131.01 Low 69.90 Div Yield 2.7% PE Ratio 10 Closing Price 89.05 Net Change 3.07 According to your research, the growth rate in dividend..
Your firm is considering a new project. You have the following cash flow estimates, quoted in nominal dollars.
Merton Enterprises has bonds on the market making annual payments, with 12 years to maturity, and selling for $963. At this price, the bonds yield 7.5 percent. What must the coupon rate be on Merton’s bonds?
Assume that the risk minimizing cross-hedge ratio (h*) is 2.0 and the correlation coefficient, ?(DS, DF), is 1.0.
What is the duration of a bond that will pay $50 per year in coupon payments and $1,000 after four years? Use a discount rate of 10 percent. What is the yield to maturity on a municipal bond scheduled to pay $10,000 upon maturity 5 years from now? Th..
Union Pacific Railroad reported net income of $770 million in 1993, after interest expenses of $320 million. (The corporate tax rate was 36%.) It reported depreciation of $960 million in that year, and capital spending was $1.2 billion. Estimate the ..
A STRIPS traded on May 1 2013, matures in 18 years on May 1 2031. Assuming a 6.1 percent yield to maturity, what is the STRIPS price?
Assume that your firm's marginal tax rate is 35% and that your firm has the following capital structure: Bonds coupon rate = 6% yield-to-maturity = 5.5% Market value of bonds = $25 million Book value of bonds = $30 million. What is your firm’s Weight..
A loan of 100,000 is payable over five years with monthly payments of 60,000 commencing one month after the inception date. The loan repayment is 2,000 per month and the nominal rate 10 per cent. How much capital remains at the end of five years? If ..
Bank A pays 5% simple interest on its savings account balances while Bank B pays 4% interest compounded semi-annually. If you decide to save $10,000 in each bank, how much interest will you have earned after five years from each bank?
how much of the loss will be covered by each policy if the loss is settled on a pro rata basis by the insurers?
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