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Question 1: Suppose drug retailer CVS has an equity beta of 0.80 and a debt-equity ratio of 0.10. Estimate its asset beta assuming its debt beta is zero. Suppose CVS were to increase its leverage so that its debt-equity ratio was 0.50. Assuming its debt beta were still zero, what would you expect its equity beta to be after the increase in leverage?
Question 2: Suppose ALCO plans to pay $60 million in interest each year for the next eight years, and then repay the principal of $1 billion in year 8. These payments are risk free, and ALCO's marginal tax rate will remain 39% throughout this period. If the risk-free interest rate is 6%, by how much does the interest tax shield increase the value of ALCO?
Question 3: Harris Solutions expects to have free cash flow in the coming year of $1.75 million, and its free cash flow is expected to grow at a rate of 3.5% per year thereafter. Harris Solutions has an equity cost of capital of 12% and a debt cost of capital of 7%, and it pays a corporate tax rate of 40%. If Harris Solutions maintains a debtequity ratio of 2.5, what is the value of its interest tax shield?
Indicate the personnel resources needed for the investigation and assess why you believe this amount of resources is warranted.
Describe the effect of each of the following events on the demand or supply of gasoline in the USA. Further indicate the likely direction in the amount of gasoline exchanged AND the expected market price.
A petroleum refining and recovery service company, Cowboy Enterprises, purchased $13,790 worth of equipment for reconditioning fuels in its storage tanks. The equipment has a functional life of 14 years and a salvage value of 5% of the purchased pric..
Contingency Plan 1 is a new process introduced by an international health team that guarantees the removal of pathogenic microorganisms in the town’s water system. Evidence has revealed that Contingency Plan 1 will lower the influenza rate to four ne..
Maria’s utility for yoga classes (y) and spin classes (x) are as follows: Maria lives in Clarksville, Austin where things are expensive: yoga classes cost $10 and a spinclasses cost $14 each. Her monthly budget to spend on yoga and spin classes are $..
Identify a market failure that plays an important role in a movie, novel, short story, TV show, or song. Explain what the market failure is and how it is presented in the source. For example, one of my favorite movies is "Open Range," a western starr..
a) What can you conclude about the responsiveness of Frosty Cola to its own price? How do you know
Many people find the current unemployment figures for Australia a bit unbelievable. Why is this? Why might the official statistics be inaccurate? Using the simple Keynesian (J-W) model to assess the implications for equilibrium GDP and the level of s..
If the bond is purchased at market price, what is the expected rate of return?
Think of a product you believe is mass marketed. How did you arrive at this conclusion? You might want to comment on classmates' posts with your opinion as to whether they have selected a mass-marketed product, and if not, why you think their choice ..
PRICING is controlled by the manufacturer or producer of the product or service. The manufacturer/producer understands the competition (competitive activity)
In Becker’s taste for discrimination model, how does discrimination disappear in the long run? Briefly describe the three types of unemployment? Briefly describe the economic policies undertaken by Governments to reduce unemployment?
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