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Problem 1
Given that a company's risk-free rate is 1%, the S&P 500 average return is 6%, and a firm has a beta of 0.8, compute the Weighted Average Cost of Capital for the firm given that the firm can borrow from the bank at (on average) an interest rate of 4%. The balance sheet shows that there is $300 million of shareholder equity, and $100 million of long-term debt.
Problem 2
The same company as the firm in Problem 1 (i.e. assume the WACC that you have computed above) is now contemplating the following project that will generate the following cash flows:
Year 1 2 3 4 5
Cash flow 12 12 4 4 7
The initial investment is 33 (all number are $ millions).
Should the firm proceed with the investment?
Does it make a difference if there is uncertainty regarding the cash flows: there is only an 85% chance that the cash will be realized. Assume that the cash flows are reduced by 15% accordingly.
Calculate the depreciation per period if the straight line method is applied and what recommendations relative to the amount and the handling of inventory could you make to the new owners?
The potential investment has the given range of possible outcomes and probabilities: 10 percent probability of a -20 percent return, 40 percent probability of a 15 percent return, 40 percent probability of a 25 percent return, Determine the weighted ..
Evaluate total savings in each period. Is the Investment/Saving market at equilibrium in each period?
The stock of the Madison Travel Corporation is trading for $56 per share. You put a limit purchase order at $48 for one month. During the month, the stock price decrease to $46,
Assume it is May 1985 & the current price of the Greek drachma is Dr 1 = $0.006369, but expected spot value 90 days hence is Dr 1 = $0.005980.
Identify current ratios, and compare the ratios to industry averages and identify debt-to-equity ratios, and compare them to industry standards. Use the ratios to calculate the company's cost of capital.
Evaluate the three largest assets. Be sure to look at all the assets, not just the current assets and describe whether you believe the company has invested in the appropriate types of assets for this company.
An investor wants upside potential if IBM increases but wants (net) losses no greater than $15 if prices decline and an investor wants to capture prots if IBM declines in price but wants a guaranteed limited loss if prices increase.
International finance requires calculation of swap and loan amount for euros with given exchange rates - Show me issue dollar loan, swap dollars for euro and net cashflow for each of these years. Also, inflows are show as positive values.
Why might Kuanysh want to enter into this lease contract rather than simply borrowing the money and buying the location itself?
What approaches would you use to evaluate the value of brands and what assumptions underlie these approaches?
Discuss the above quotation. Explain and evaluate the arguments for and against regulation. What is your opinion of the current level of accounting regulation?
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