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A financier has made a loan of $5 million. The contract for the loan calls for payment of interest quarterly at a nominal annual rate of 7.5%, until the full principal is repaid in one lump sum at the end of 14 years. After 3 years have gone by, immediately after the quarterly payment, the financier decides to sell the asset to an investor. If the investor values these cash flows with a nominal annual rate of 5.2% when compounded quarterly, what value would the investor consider the remaining loan contract to be worth?
Suppose a firm has sales that are highly correlated with economic conditions. Short-term interest rates are also pro-cyclical.
Stock Y has a beta of 1.4 and an expected return of 16.4 percent. Stock Z has a beta of 0.85 and an expected return of 12 percent. Required: What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?
ABC Corp. has just paid a quarterly dividend of $0.28. ABC's dividends will grow by 5% for the next 4 quarters, and then grow by 0.6% thereafter. ABC has a quarterly required return of 4%. What is the intrinsic value of ABC stock?
A bank currently holds a loan with a principal of $12 million.- Explain how the bank would use a swap to achieve this objective.
Negus Enterprises has an inventory conversion period of 79 days, an average collection period of 49 days, and a payables deferral period of 20 days. Assume that cost of goods sold is 80% of sales. What is the length of the firm's cash conversion cycl..
What are the differences between a straight bond, a floating-rate note, and a convertible bond?
What is its terminal, or horizon value and what is the value of operations?
A small biotechnology research corporation has been experiencing losses for the first three years of its existence, and thus has a negative balance in retained earnings. The corporation’s stock price, however, is $1 per share. The required return on ..
Carter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%. Its assets totaled $4 million at the end of 2012. Carter is at full capacity, so its assets must grow in proportion to projected sales. Unde..
What is the equivalent annual cash flow of each of the options at a 10% discount rate?
A loan is offered with monthly payments and a 7.50 percent APR. What's the loan's effective annual rate (EAR)?
GTB, Inc., has a 20 percent tax rate and has $86,196,000 in assets, currently financed entirely with equity. Equity is worth $6 per share, and book value of equity is equal to market value of equity. What will be the break-even level of EBIT?
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