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Expected cash flows: FireRock Wheel Corp is evaluating a project in which there is a 40 percent probability of revenues totaling $3 million and a 60 percent probability of revenues totaling $1 million per year. Its cash expenses will be $1.0 million while depreciation expense will be $200,000; then what is the expected free cash flow from taking the project if the marginal tax rate for the firm is 30 percent?
O’Connell & Co. expects its EBIT to be $83,000 every year forever. The firm can borrow at 11 percent. O’Connell currently has no debt, and its cost of equity is 15 percent and the tax rate is 35 percent. The company borrows $144,000 and uses the proc..
Suppose that you own 3,400 shares of Nocash Corp. and the company is about to pay a 25% stock dividend. The stock currently sells at $125 per share. What will be the number of shares that you hold after the stock dividend is paid?
Atlas Insurance wants to sell you an annuity which will pay you $1,600 per quarter for 25 year. You want to earn a minimum rate of return of 6.5 percent. What is the most you are willing to pay as a lump sum today to buy this annuity?
Frank Smith has been a plumber in the college town of Turlock, CA for the last thirty years. All the people who know him call him Frankie because he is friendly, social, and charges a fair price for his services. His business has grown because new cu..
Real estate users and real estate investors have the same goals, making it easy to complete lease transactions. The real estate sector with the greatest risk / volatility of cash flows because of the duration of lease contracts is:
An out-of-the-money call option is one that:
A bank with a 2-year horizon has issued a 1-year certificate of deposit for $50 million at an interest rate of 2%. With the proceeds, the bank has purchased a 2-year Treasury note that pays 4% interest. What risk does the bank face in entering into t..
The next dividend payment by Dizzle, Inc., will be $3.15 per share. The dividends are anticipated to maintain a growth rate of 6.5 percent, forever. Assume the stock currently sells for $49.90 per share. What is the dividend yield? What is the expect..
A zero coupon bond with a face value of $1,000 is issued with an initial price of $507.96. The bond matures in 18 years. What is the implicit interest, in dollars, for the first year of the bond's life? Use semiannual compounding.
VC invests $4 million in company Z. The VC requires an IRR of 40%. Similar public companies sell at P/E of 30. The VC expects to harvest the company in 6 years when its earnings after tax are expected to be $5 million. How much will the VC’s ownershi..
Given the following Euro to $ Exchange rate of 1.46, what is the information contained in this quote? If the Purchasing Power Parity Theory is correct, what is true about the relationship between the US dollar and the Euro at this exchange rate?
A stock has just paid a dividend and has declared an annual dividend of $2.00 to be paid one year from today. The dividend is expected to grow at a 5% annual rate. The return on equity for similar stocks is 12%. What is P0?
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