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Discuss how certain features (characteristics) of bonds affect their risk and hence return. Also discuss the usefulness and limitations of bonds ratings. How would these factors change your investment strategy when looking at bonds?
A firm's preferred stock pays an annual dividend of $8, and the stock sells for $72. Flotation costs for new issuances of preferred stock are 3% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 38%?
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.85 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
A $1000 loan over a 10-year period earns an effective rate of interest of 9% per annum. Interest is paid each year as accrued and the principal is repaid at the end of ten years. If the repayments to the lender are reinvested at 7%, find the yield ra..
You have developed the following pro forma income statement for your corporation. It represents the most recent year's operations, which ended yesterday. sales 45,672,000 variable cost -22,753,000 revenue before fixed cost 22,919,000 fixed cost -9,18..
CSL is a chain of computer service stores. At the beginning of January, 50 skilled technicians work for CSL. Each skilled technician can work up to 160 hours per month. To meet future demands, new technicians must be trained. It takes 1 month to trai..
Part 1 Garcia's Truckin Inc. is considering the purchase of a new production machine for $200,000. The purchase of this machine will result in an increase in earnings before interest and taxes of $50,000 per year. To operate the machine properly, wor..
Bayou Okra Farms just paid a dividend of $3.35 on its stock. The growth rate in dividends is expected to be a constant 4 percent per year indefinitely. Investors require a return of 16 percent for the first three years, a return of 14 percent for the..
The Electrical Engineering Company is considering a new project that will require an initial cash investment of $612,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $84,000, $1..
Suppose you hold LLL employee stock options representing options to buy 13,000 shares of LLL stock. LLL accountants estimated the value of these options using the Black-Scholes-Merton formula and the following assumptions:
What is the price of a European call option on a non-dividend-paying stock when the stock price is 652, the strike price is $60, the risk-free interest rate is 12% per annum, the volatility is 30% per annum, and the time to maturity is three months?
Anthony is considering the purchase of used car. The price, including the title and taxes, is $9,530. Anthony is able to make a $2,530 down payment. The balance, $7,000, will be borrowed from the Credit Union at an interest rate of 9.25% compounded d..
A bond has a face (par) value of $14,445; it will mature in 5 years. The bond coupon rate is 1.5%; there are 9 premium payments per year. If the bond is purchased for 93.39% of its face value and later sold at its face value, what is the bond yield r..
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