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We are evaluating an investment project that will generate cash flows of $25,000. $40,000 and $30,000 in the next three years. The required initial investment is $70,000. Assume that the company is 100% equity finance (there is no debt in the capital structure of this company). The risk-free rate of interest of 4% and the expected market risk premium is 8%. However, we are unsure of the risk of the company It we think the beta of the firm is 0.8, when in fact the beta is really 1.7 will we be making the correct investment decision? For how much more or less (in dollars) are we valuing the investment project?
One-year bonds yield 7%, two-year bonds yield 8%, three-year bonds and greater maturity bonds all yield 9%. You are choosing between one-, two-, and three-year maturity bonds all paying annual coupons of 8%, once a year. Which bond should you buy if ..
Consider a 30-year corporate bond paying 9 percent semi-annual coupon. The current yield to maturity is 11 percent. a. Find the modified duration. b. Refer to part a. If the interest increases by 25 basis points, what is the exact change in price?
What is the expected price of Stock C four years from now if growth (g) is 6%, and the investors are requiring 11%, (the required rate of return, r is 11%) and the current dividend, Do, is $1.75. Calculate expected P^4.
Write a case study of a firm that has issued convertible securities (preferred or bond). Discuss why the firm issued the convertible securities. Discuss problems that firm had in issuing the convertible securities.
King Farm Manufacturing Company's common stock has a beta of 2.3. If the risk-free return is 4.88 percent, and the market risk premium s 8.24 percent. Calculate the required return on King Farm Manufacturing's common stock. Round the answers to two d..
The risk free rate is 3%, measured by a long-term U.S. government bond. The total market return is expected to be 11% over the foreseeable future. The Beta coefficient is 3.0 on the CAPM when finding out its hurdle rate for the project. The company e..
Sam, age 35, and Kathy, age 33, are married and have a son, age 1. Sam is employed as an accountant and earns $75,000 annually. Kathy is a professor of finance at a large state university and earns $150,000 annually. Sam is killed instantly in an aut..
The Seneca Children’s Fund (SCF) is a local charity that runs a summer camp for disadvantaged children. The fund’s board of directors has been working very hard over recent years to decrease the amount of overhead expenses, a major factor in how char..
During periods of high inflation, U.S. firms have strong incentives to purchase short-lived assets and frequently replace them, rather than investing in long-lived assets. True, False, Uncertain and explain
What is the current price for a General Electric 6% corporate bond with 10 years to maturity if the market rate of interest for similar bonds is 7%? What would the current price be if the market rate of interest drops to 4%? What financial principal ..
Jake and Hannah have been married for 45 years at the time of Jake’s death. They have two surviving adult children, Susie and Tony. All the following transfers from Jake’s estate to Hannah are non deductible terminable interests for federal estate ta..
From the balance sheet you find the following balances: cash and marketable securities = $200,000, accounts receivable = $1,100,000, inventory = $2,000,000, accrued wages and taxes = $500,000, accounts payable = $600,000, and notes payable = $100,000..
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