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You are a research scientist with a new drug idea. It costs $100 million to create a lab and test it. If it pans out you get $500 million. If it does not you can resell the lab for the same amount you paid. You do not have $100 million in cash. The discount rate is 0% and the promised and expected rates are equal. You do not know any better than your outside investors whether the drug will be successful. Given an NPV of $200 million.
a) What is the cost of debt?
b) If you borrowed the $100 million how much would you expect to keep in each instance? How much would your creditors get in each instance?
c) Assuming there is no debt and selling equity at a fair price how much would you have to sell and how much would you expect to keep in each instance?
The US investment banking industry analysis
Vintage, Inc. has a total asset turnover of 1.09 and a net profit margin of 4.91 percent. The total assets to equity ratio for the firm is 3.3. Calculate Vintage’s return on equity.
Several alternative definitions were presented for a new product. How would a company’s marketing strategy by affected if it used (a) the legal definition, or (b) a behavioral definition?
DC Motors recently paid $1.10 as its annual dividend. Future dividends are projected at $1.06 $1.02, and $1.00 over the next three years, respectively. After that, the dividend is expected to decrease by 2 percent annually. What is one share of this ..
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You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 5 percent, -11 percent, 24 percent, 18 percent, and 17 percent. What was the arithmetic average return on Crash-n-Burn’s stock over this five year period..
Construct a one-period binomial option pricing model in which the stock and a risk-free bond are used to replicate a European call option.
Which of the following is not a financial motive but rather an operating motive for merger and consolidation? Mirrlees Corp. has 10,000 7% bonds convertible into 30 shares per $1000 bond. Mirrlees has 1,000,000 outstanding shares. Mirrlees has a tax ..
Based on the above transactions, compute the Time Weighted and Money Weighted rate of return for the account.
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