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You are considering acquiring a firm that you believe can generate expected cash flows of $26,000 a year forever. However, you recognize that those cash flows are uncertain.
a. Suppose you believe that the beta of the firm is 2.0. How much is the firm worth if the risk-free rate is 4% and the expected rate of return on the market portfolio is 7%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of the firm $
b. By how much will you overvalue the firm if its beta is actually 2.4? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Overvaluation $
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,300,000. Also, at year-end 2015, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
Grant, Inc. is a fast growing company and its dividend is expected to grow at a rate of 10 percent for the next two years. It will then settle to a constant growth rate of 5 percent. If the last dividend was $6.20 and the required rate of return is 1..
Which one of the following statements about common stock is true? Substituting EBITDA for EBIT when computing the times interest earned ratio will make the company appear. Which one of the following is a leverage measure?
You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s elasticity of demand is -2, while group 2’s is -3. Your marginal cost of producing the product is $30. Determine your optim..
You borrow $50,000 5 year loan to make renovations to a house. The interest rate on this loan is 8% per year. The loan calls for equal monthly payments. What is the monthly payment on this loan?
What is the federal funds rate? What is the federal funds target rate? What is federal funds effective rate? The FOMC uses the open market operation to ensure that the effective federal funds rate fluctuates closely around the target. What is the cur..
A township expects its population of 5,000 to grow annually at the rate of 5 percent. The township currently spends $300 per inhabitant, but, as the results of inflation and wage increments, expects the per capita expenditure to grow annually by 7 pe..
You need to accumulate $119,538 for your son’s education. You have decided to place equal year-end deposits in a savings account for the next 17 years. The savings account pays 6.46 percent per year, compounded annually. How much will each annual pay..
Consider the following data: p $8/unit Cot $9000/OT shift μ (Normal dist)) 1000/shift σ (Normal dist) 100/shift R 15 shifts (1 week) Operations are 3 shifts per day, 5 days per week. Four shifts are available during each weekend for any production “c..
Suppose you buy a 7.2 percent coupon bond today for $1,140. The bond has 10 years to maturity. What rate of return do you expect to earn on your investment? Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. ..
Project K costs $45,000, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 8%. What is the project's discounted payback?
With no trade, what is the real wage of labor with respect to each good in the United States? In the rest of the world? Which country's labor has the higher "average" real wage?
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