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Deep Water Drilling has operations off the coast of South America helping its clients (principally sovereign oil companies) tap into oil reserves located more than 10,000 feet below sea level. The Company estimates that increased demand for its services over the next three years will allow it to operate profitably four additional drilling rigs. After three years demand is expected to return to current levels, at which time any excess rigs can be sold for $25 million each. Each rig generates quarterly net cash flows of $15 million, payable in arrears. The acquisition cost of each rig is $200 million. The Company’s cost of capital is 6%. If Deep Water Drilling can add one rig every-six months, how many should it acquire, and why?
Assume that you are the owner of an import business that specializes in the sale of floor tiles from around the world. Your business has grown dramatically over the 2 years since its founding, and you are looking for a way to convert your accounts re..
Pick a brand marketed in more than one country. Assess the extent to which the brand is marketed on a standardized versus customized basis.
Lucy is feeling crabby. Her adjustable rate mortgage is about to have the interest rate increased. She is exactly five years into her loan. She is offered two alternatives by her mortgage company; either pay the higher interest rate for the remaining..
As the text notes, firms should adopt positive NPV projects, and reject negative NPV projects. But what if a project has a $0 NPV? Should they accept the project or reject it? Explain.
You are analyzing the after-tax cost of debt for a firm. You know that the firm’s 12-year maturity, 9.10 percent semi-annual coupon bonds are selling at a price of $767.17. These bonds are the only debt outstanding for the firm. What is the after-tax..
Marketers watch consumer communication and what they do online. They use this information to personalize online shopping experiences. Is this sophisticated web research or a violation of consumer privacy?
What are the effective annualized rates for each of the following annual stated rates and compounding frequencies? What can you conclude about the degree to which stated rates are misleading given (1) the level of interest rates and (2) the frequency..
A call option on Juniper Corp. stock with exercise price of $30 and expiration date one year from now is worth $8.50 today.The stock should be worth what today.
What was the trend from 1959 to 2008?- What happened to the monetary base total numbers from 2008 to 2010?
Porter bonds were issued five years ago with a 20 year maturity. The bond has a call provision that allows them to pay off the debt anytime after ten years by compensating bond holders with an extra year’s interest at the coupon rate. The bond’s coup..
A bondholder owns 15-year government bonds with a $5 million face value and a 6 percent coupon that is paid annually. The bonds are currently priced at $550,018.73 with a yield of 5.034 percent. The bonds have a duration of 10.53 years. If interest r..
What is the company’s pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt?
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