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Fountain Corporation economists estimate that the probability of a good business environment next year is equal to the probability of a bad environment. Knowing this, the managers of Fountain must choose between two mutually exclusive projects. Suppose the payoff from the chosen project is the only future cash flow expected by the firm. Fountain is obliged to make a $1000 payment to its bondholders next year. Here is a description of the projects:
Low Risk Project
Probability Payoff Value of Stock Value of Bonds
Recession .5 1000 0 1000
Boom .5 1400 400 1000
High Risk Project
Recession .5 200 0 200
Boom .5 1600 600 1000
Which project will the stockholders prefer? Which project maximizes the value of the firm? Why are these answers different?
Local Bank down the street is also offering a loan at 10% where the payments are made quarterly. Which loan has the lowest effective annual rate?
AAA's $1,000 par value 10-year 6.0% coupon bonds with semiannual payments are trading for $950.00. Find the required return on the bonds.
ABC needs to increase $50 Million by issuing common stock in an IPO. ABC will use the proceeds to pay down 8 percent coupon debt. ABC right now has 20 million shares outstanding representing a book equity interest of 200 million.
Create a FUTURE budget based on where you want to be in the future. What would your ideal budget look like? What would your housing expenses, cable, electricity, gas, savings amounts, etc all look like?
case study 1nbspyou work in walt disney companys corporate finance and treasury department and have just been assigned
You take out a thirty year $100,000 mortgage loan with an APR of 6% and monthly payments. In 12 years you decide to sell your house and pay off the mortgage.
Given emerging information technology, there's controversy regarding the continuing viability of this marketing concept. One view of how the concept might continue to evolve is from renowned futurist, Thomas Frey. Using the following websites:
suppose we are analyzing firm x. firm x is financed with both equity and debt and will exist for only one year. if the
One year ahead of the planned IPO the company is already raising capital through private placement markets. What you can infer from the company success in the private market about the success of the IPO?
How much gain should Hardin recognize on this exchange, and at what amount should the acquired computer be recorded, respectively?
what is the stock's predicted return? Round your answer to two decimal places.
Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places.
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