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In each of the theories of capital structure, the cost of equity increases as the amount of debt increases. So why don't financial managers use as little debt as possible to keep the cost of equity down? After all, aren't financial managers supposed to maximize the value of a firm?
A company today issues a 15-year $1,000 bond that carries a 4.7% annual coupon rate (semi annual coupons). Find the total interest that the company expects to pay over the lifetime of the bond.
Explain the nature of groups and group behavior within organisations you identified and discuss factors that may promote or inhibit the development of effective teamwork in organisations you identified.
The spot price of an investment asset is $30 and the risk-free rate for all maturities is 10% with continuous compounding. The asset provides an income of $2 at the end of the first year and at the end of the second year. What is the three-year forwa..
Calculating the Number of Periods. Calculating Rates of Return. In 2011, an 1880-O Morgan silver dollar sold for $13,113. What was the rate of return on this investment? Calculating Present Values. Suppose you are committed to owning a $150,000 Ferra..
The real risk-free rate, r*, is 2.1%. Inflation is expected to average 3.2% a year for the next 4 years, after which time inflation is expected to average 4.05% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yie..
You are the practice manager for a four-physician office. You arrive on Monday morning to find the entire office suite flooded from overhead sprinklers that malfunctioned over the weekend. Water stands ankle-deep everywhere. The practice carries valu..
Figure 3.6 gives a decision tree for Mr. Smart’s situation. Mr. Smart is risk-averse. The amount of utility he derives from a payoff is Utility = 2In (payoff). Because of a planned major purchase, Mr. Smart intends to sell his investment one year lat..
Suppose a corporation can change its depreciation method so that its tax payments will decrease by $5,000 this year but increase by $5,000 next year
Stock A has a beta of 1.50 and a standard deviation of return of 35%. Stock B has a beta of 3.25 and a standard deviation of return of 60%. Assume that you form a portfolio that is 40% invested in Stock A and 60% invested in Stock B. Using the inform..
Why might a manager be forced to use simulation instead of an analytical model in dealing with a problem of inventory ordering policy
What are some of the dangers and incentive problems of the financial sector getting too big and commonwealth Bank issues bonds on the capital market to raise financing for its loans.
Six-month T-bills have a nominal rate of 5%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 2.5%. In the spot exchange market, 1 yen equals $0.008. If interest rate parity holds, what is the 6-month forward exchange ..
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