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FINANCE capital structure theory
In theory, if two companies have identical capital structure, then they should both use the same discount rate for valuing a particular project, i.e., the discount rate does not depend on which company is evaluating the project. True or False? Why?
A project is expected to create operating cash flows of $33,500 a year for three years. The initial cost of the fixed assets is $69,000. These assets will be worthless at the end of the project. An additional $5,000 of net working capital will be req..
An insurance company is offering a new policy to its customers. Typically the policy is bought by a parent or grandparent for a child at the child’s birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following ..
Determine two to three (2-3) methods of using stocks and options to create a risk-free hedge portfolio. Support your answer with examples of these methods being used to create a risk-free hedge portfolio.
Suppose you can only use the spot market. What is your total dollar cost? (choose either the bid or ask and make the conversion based on 1 million pounds) If you are able to buy in both spot and forward markets, where is it cheaper to buy pounds? Wha..
ABC is expected to pay a $2.25 dividend next year, and this dividend is expected to grow at a 3% annual rate forever. If the required return is 8%, what is the value of this stock today?
Cedric Benson, a top five draft pick of the Chicago Bears and his agent are evaluating three contract options. In each case there is a signing bonus and a series of payments over the life of the contract. He uses a 10.25 percent rate of return to eva..
Suppose that you are 25 years old. You figure that your income will be such that you will be able to save for the next 25 years, until age 50 (first deposit at age 26 and last deposit at age 50). At age 50, your income will just cover your expenses. ..
Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered an immediate payment of $100,000. In terms of present val..
First Simple Bank pays 8.8 percent simple interest on its investment accounts. First Complex Bank pays interest on its accounts compounded annually. Required: What rate should the bank set if it wants to match First Simple Bank over an investment hor..
You are paying an effective annual rate of 14.50 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on your account?
If the central bank uses unsterilized intervention to defend the fixed rate, will intervention tend to reduce the expansionary effect of the fiscal policy?
Price and yield An 6% semiannual coupon bond matures in 5 years. The bond has a face value of $1,000 and a current yield of 6.6956%. What is the bond's price? A chain of appliance stores, APP Corporation, purchases inventory with a net price of $250..
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