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On January 1, 2012, Hoppy Corporation issued $18,000,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hoppy at 105. Hoppy has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method). On December 31, 2018, when the fair value of the bonds was 96, Hoppy repurchased $4,000,000 of the bonds in the open market at 96. Hoppy has recorded interest and amortization for 2018. Ignoring income taxes and assuming the gain is material, Hoppy should report this reacquisition as: a loss of $244,000 a gain of $244,000 a loss of $196,000 a gain of $196,000
Assume that you have just been hired by Adams, Garitty, and Evans (AGE), a consulting firm that specializes in analyses of firms’ capital structures. Your boss has asked you to examine the capital structure of Campus Deli and Sub Shop (CDSS), which i..
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2013, and its year-end total assets were $1,700,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
The above borrowing rates represent the borrowing rates the firms can obtain for a five year fixed rate debt issue in U.S. dollars or Swiss francs. Suppose XYZ wishes to borrow Swiss francs and LMN wishes to borrow U.S. dollars. Using a swap demonstr..
Future contracts contrasts with the forward contracts by doing which of the following?
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12.6 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected..
Given the vast resources available to mutual fund managers, these managers on average have generally:
Suppose you buy a TIPS bond with a 5% coupon rate, 18 months to maturity, pays semiannually, and a YTM of 3.3%. The CPI is currently 275.2. It will increase to 288 in 6 months, to 291 in 12 months, and to 294 in 18 months. Calculate the price of this..
Your broker offers to sell you shares of Wingler & Company common stock, which paid a dividend of $2 yesterday. You expect the dividend to grow at a rate of 5% per year into perpetuity. If the appropriate rate of return for the stock is 12%, what is ..
Consider a European put option with a strike price of $106.5 and a maturity of 11 months. The underlying stockprice equals 99. The continously compounded risk-free rate is 7.25 percent per year. What is the lower and upper bound, repectively, on the ..
The asset beta for firms in the same industry (SIC) code and determine that value is 1.15. The firm plans on keeping its D/E ratio constant (at the current level) going forward and the tax rate is expected to be 35%. The beta of the firm's de..
Cohen's Bowling Emporium has a degree of financial leverage of 2.0 and a degree of combined leverage of 6.0.- What effect will a 15 percent increase in sales have on EBIT?
Given an optimal capital structure that is 50% debt and 50% common stock, calculate the weighted average cost for capital. Coupon rate on bonds: 9 %. Yield to maturity on bonds: 11% next expected dividend on common stock 3.00$, current price for comm..
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