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Winston Enterprises would like to buy some additional land and build a new factory. The anticipated total cost is $136 million. The owner of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire expansion project. Management has decided to save $450,000 a month for this purpose. The firm earns 6% compounded monthly on the funds it saves. How long does the company have to wait before expanding its operations?
In this module we examine the time value of money. This concept can also be used to plan an individual’s retirement account. Assume some amount of monthly contributions, employer matching added in, assumed average annual earnings, and the expected n..
If one-year nominal interest rate in the U.S. is 3%, while the one-year nominal interest rate in Australia is 5%. The spot rate of the Australian dollar is $.96. Interest Parity is held. You will need 5 million Australian dollars in one year. Today, ..
Avila Industries has $7.5 million in assets, no preferred stock, and total liabilities of $3 million. There are 3 million shares of common stock outstanding and the stock is selling for $5.25 per share. What is its price to book value?
Suppose you are considering investing in either of two AAA corporate bonds. One will provide you with an annual 8% coupon payment, while the other only pay's a 6% coupon. Assume current yields for AAA bonds are 7%. Explain why your yield to maturity..
AMF Corporation is considering the purchase of a warehousing facility. AMF plans to finance this by borrowing the entire purchase price of the warehouse at a 10% annual interest rate for 20 years. If the purchase price of the warehouse is $200,000, w..
A drawback to the historical approach of estimating an asset’s expected return is:
McIver, Inc. currently pays a $2 annual dividend. Investors believe that dividends will grow at 20% next year, 12% for the following year, and 6% annually thereafter. The required return is 10%. What is the current price of the stock?
Decker Tires’ free cash flow for the current year equals $1.32 million. Analysts expect the company's free cash flow to grow by 30% next year, by 10% in the year after that, and at a constant rate of 5% thereafter. The WACC for this company 9.00%. De..
Assume that a firm's manager decides to fund its entire investment need this year by issuing $500 million in bonds. After-tax cost of these bonds is 6%. The firm’s optimal capital structure calls for 40% debt and 60% equity. The cost of equity is 16%..
Create a delta neutral portfolio of call options and stock. Short 10,000 call options - How many shares would you buy or sell anda - What is the price of the option if it is a European call?
A coin that was featured in a famous novel sold at auction in 2014 for $9,179,000. The coin had a face value of $20 when it was issued in 1793 and had previously been sold for $220,000 in 1970. What annual rate did the 1970 buyer earn on his purchase..
"Suppose that 1 Euro could be purchased in the foreign exchange market today for $0.25. If the Euro appreciated 10 percent tomorrow against the dollar, how many Euros would a dollar buy tomorrow?"
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