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Consider two firms, with and without, that have identical assets that generate identical cash flows. Without is an all-equity firm, with 1 million shares outstanding that trade for a price of $24 per share. With has 2 million shares outstanding and $12 million dollars in debt at an interest rate of 5%. a) Assume that MM's perfect capital markets conditions are met and that you can borrow and lend at the same 5% rate as With. You have $5000 of your own money to invest and you plan on buying Without stock. Using homemade leverage, how much do you need to borrow in your margin account so that the payoff of your margined purchase of Without stock will be the same as a $5000 investment in With stock?
What is the risk-neutral probability of a positive outcome? What are the values of one-month call options with strike prices of $18, $20, $22, and $24?
What is the required rate of return? What stock price is expected 1 year from now?
Please provide a thorough discussion on the different bond features someone might consider pref. For example, some bonds are tax free (municipal bonds), some are insured. Of course there is a trade off between risk and return. Do you think that there..
Describe how fixed costs fi, i ∈ V1, in the CPL model should be computed in order to take labour costs, property taxes and site developments costs into account.
An investor purchases a stock for $38 and a put for $.50 with a strike price of $35. The investor sells a call for $.50 with a strike price of $40. What is the maximum profit and loss for this position?
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment). The scanner costs $6,400,000. Because of radiation contamination, it will actually ..
Consider a $4,900 deposit earning 8 percent interest per year for 8 years. What is the future value? How much total interest is earned on the original deposit? How much is interest earned on interest?
It paid a $1.92 per share dividend today. How much of the return came from dividend yield and how much came from capital gain?
Alexandria's Dance Studio is currently an all-equity firm with earnings before interest and taxes of $338,000 and a cost of equity of 14.2 percent. The tax rate is 34 percent. Alexandria is considering adding $400,000 of debt with a coupon rate of 7 ..
Consider relative purchasing power parity (PPP) and remember the consumer price index (CPI) provides the price level in a country at any point in time.
Prepare the consolidation entries relating to the intercorporate sale of inventories
Sensitivity analysis helps determine the
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