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Pentos International (PI) is in heavy equipment industry. The debt rating for PI is AA and the yield spread on AA rated bonds for five year maturity is 3% per year. The yield on a five-year treasury is 4% per year. The company recently announced that it would issue convertible bonds. The bonds will have no coupons and will have a maturity of five years and will pay $1000 at the end of five years. The bond can be converted to 20 shares of PI stock at the end of two years. The price of PI stock is $35. A call option on PI stock with an exercise price of $50 and maturity of five years is priced at $18. What is the fair value of the bond? Use simple compounding and ignore any dilution effects. Hint: Convertible bond price = (bond Price without options) + (Convertible Option)
Suppose that the risk-free rate is 5%, the company's beta is equal to 2, and the expected market return is equal to 20%. What should be the IPO price (which is equal to the fundamental value of the firm) according to the two stage DDM?
CGI ventures has a current share price of $45 and 20 million shares outstanding. Suppose CGI announces plans to lower its corporate taxes by borrowing
What is the expected return of your portfolio if Jacob, Bella, and Edward have expected returns of 0.04, 0.20, and 0.15, respectfully?
What is the liquidity premium (LP) on Keys' bonds?
The Winter Wear Company has expected earnings before interest and taxes (EBIT) of $2,100, an unlevered cost of capital of 14% and a tax rate of 34%.
Complete the income statement using the template below and explain how this statement can be used to help management in the decision making process.
Now suppose Bayer could conduct a separate analysis to accurately estimate the launch costs of Hymilin for obesity before the beginning of Phase 1.
What is the approximate effective rate if the nominal annual interest rate is 11% and is compounded quarterly?
If the weighted average cost of capital is 14%, what is the firm's value of operations, in millions?
Incremental Analysis Consider the production cost information for Santiago's Salsa in problem 1. The corporation is currently producing and selling 250,000 jars of salsa yearly.
What is the value of the Debt and Equity on their balance sheet for capital structure (exhibits 1 & 2)? What is the Enterprise Value (EV) of Midland? What is Midland's Kd (Cost of Debt)
Modeling internet usage the percent of the U.S. population that uses the Internet, during selected years from 2000, is given in the following table.
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