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Rock Bottom Carpets sells 3,100 carpets a year at an average price per carpet of $1,640. The carrying cost per unit is $218.40. The company orders 500 carpets at a time and has a fixed order cost of $78 per order. The carpets are sold out before they are restocked. What is the economic order quantity?
There are two zero-coupon bonds, A and B. Both bonds have a maturity of 1 year. The par value of A is $100 and the price is $90. The par value of B is $50 and the price is $44. Develop an arbitrage strategy using bonds A and B
A firm has debt of $90,000, equity of $140,000, a leveraged value of $100,000, a cost of debt of 6%, a cost of equity of 12%, and a tax rate of 40%. What is the firm's weighted average cost of capital?
Acetate, Inc., has equity with a market value of $23.1 million and debt with a market value of $9.24 million. Treasury bills that mature in one year yield 6 percent per year, and the expected return on the market portfolio is 11 percent. The beta of ..
If the firm makes it's debentures subordinate to it's bank debt, what will the effect be on the average cost of total debt. What effect does this have on the interest rate that a firm must pay on a new issue of long-term debt. Why does it have such a..
You are required to submit a bid to supply 200,000,000 widgets per year to the State of Illinois for the next five years. Your company has an idle tract of real estate that cost $1,500,000 ten years ago; if your company sold the land today, it would ..
If Milton stretches its accounts payable an extra 10 days beyond the due date next year, how much additional short-term funds (that is, trade credit) will be generated?
The firm's bonds trade with a yield to maturity of 8%, the risk-free rate is 3%, the beta of the firm's common stock is 1.5, and the market risk premium is 9%; if the firm were financed entirely with equity, the required return would be 10.85%. The f..
A proposed new investment has projected sales of $860,000. Variable costs are 60 percent of sales, and fixed costs are $195,000; depreciation is $86,000. Prepare a pro forma income statement assuming a tax rate of 35 percent. What is the projected ne..
Which form of business structure faces the greatest agency problems? A. sole proprietorship B. general partnership C. limited partnership D. Corporation E. limited liability company
Assume an investment project that has 250,000 dollars of capital cost for purchasing some machines and 150,000 dollars for buying a piece of land at time zero. The project life time is 8 years. Consider the straight line method to depreciate the inv..
Your subscription to Czar Magazine is about to expire. You plan to subscribe to the magazine for the rest of your life, and you can renew it by paying $85 annually, beginning immediately, or you can get a lifetime subscription for $1000, also payable..
A stock is expected to pay a dividend of $1.30 one year from now, $1.70 two years from now, and $2.10 three years from now. The growth rate in dividends after that point is expected to be 8% annually. The required return on the stock is 13%. The esti..
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