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Firms X and Y are identical in all respects except for capital structure. These firms operate in a perfect-world tax-exempt haven where firms and individuals pay no taxes at all. Current data on the financial structure of the two firms is as follow
Firm X: 1,000 shares outstanding, current market price of $10 per share 100 bonds outstanding with a current bond price of $100 per bond
Firm Y: 2,000 shares outstanding, current market price of $9 per share 50 bonds outstanding with a current bond price of $100 per bond
The bonds in both firms are risk free and the risk-free interest rate is 10%. An individual investor can also borrow or lend from a bank at the 10% risk-free rate.
Identify a portfolio that includes a long position in exactly 100 shares of stock in firm X and is guaranteed to make you a risk-free immediate profit. How large are these profits? [Hint: consider the value of unlevered versions of firm X and firm Y and identify a percent of the unlevered versions of these firms in which you go long one and short the other in the same percentages so as to generate a sure profit.]
Skye Flyer, Inc., has weekly credit sales of $15,900, and the average collection period is 61 days. What is the average accounts receivable figure?
What is the definition of a heuristic decision method? What might be a heuristic method for hiring someone? Explain and justify your logic
Portfolio Weights An investor owns $15,000 of Adobe Systems stock, $19,000 of Dow Chemical, and $29,000 of Office Depot. What are the portfolio weights of each stock?
Conduct a current health insurance situation analysis for the Bedos. Be sure to assess the following: a. The after-tax costs of their current plans compared to purchasing an individual policy. b. The use of a tax-advantaged account as a health insura..
Suppose you plot the historical returns of a stock versus the returns of the overall market.
Which of the following statements regarding a credit default swap is most accurate?
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. If the yield to maturity is 8.1 percent, what is the current price of the bond?
ZZZ-Best, Inc. recently issued $65.00 par-value preferred stock that pays an annual dividend of $17.00. If the stock is currently selling for $76.00, what is the expected return of this preferred stock?
If you are offered $340,000 in 15 years and you can earn 13 percent on your money, what is the present value of $340,000? Lance Murdock purchased a wooden statue of a Conquistador for $7,500 to put in his home office 6 years ago. Lance has recently m..
You are called in as a financial analyst to appraise the bonds of Olsen's Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 10 percent, which is paid semiannually. The yield to maturity on the bonds is 10 percent annua..
Assume you are married and have two children. You want to buy sufficient life insurance to take care of your family if you die. Your wife is a homemaker but has college loan of $40000. Your children are teenagers. So you only need to provide the fami..
Use a demand and supply graph for the federal funds market to analyze the effect of an open market sale of Treasury securities on the equilibrium federal funds rate.
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