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Consider an currency swap between Americana Auto Company (which wants to build an auto plant in the United Kingdom) and Britannia Bus Corporation (which wants to build an auto plant in the United States; both fictitious names). The automakers enter into a swap with a three-year term on a principal of $200 million. The spot exchange rate is $2 per pound. Americana raises 100 × 2 = $200 million and gives it to Britannia, who, in turn, raises £100 million and gives it to Americana. Americana pays Britannia at the coupon rate of 4 percent per year on £100 million and Britannia pays Americana at the coupon rate of 5 percent per year on $200 million for three years. Now, assume that the companies make payments every six months: the swap ends after six semi-annual payments, and the principals are handed back after three years. Compute the value of this currency swap.
Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. What is the after-tax cash flow fro..
Flashback Corporation is evaluating an extra dividend versus a share repurchase. In either case, $21,060 would be spent. Current earnings are $3.60 per share, and the stock currently sells for $90 per share. What will Flashback’s EPS and PE ratio be ..
A Treasury bill has a bid yield of 3.5% and an ask yield of 3.44%. The bill matures in 155 days. Assume a face value of $1,000. What is the least you could pay to acquire a bill?
Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $2.60 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company’s stock is 6 percent, 9 percent, and 12 percent, respective..
There are two firms: firm U and firm L. both firms have $50M total assists and $8M EBIT (earnings before interest and taxes).. Firm U is an unleveraged firm without debt. Firm L ia a leveraged firm with 50% of debt and 50% of common equity. The pre-t..
1 assume that you have tried three different forecasting models. for the first the mad 2.5 for the second the mse
We have 10,000 common shares of Procter and Gamble, each of which we bought for $38, and we sell covered calls on those shares. The premium is $1.5, and the strike price is $45 per share. Compute the rate of return for both the seller and the buyer o..
The common stockholders of a corporation
A company is considering various options for purchasing a new piece of manufacturing equipment. The price of the equipment is $150,000. It is estimated that the equipment will be worthless after 10 years of service. Compute the best monetary value fo..
Ghost Rider Corporation has bonds on the market with 10 years to maturity, a YTM of 6.5 percent, and a current price of $926. What must the coupon rate be on the company’s bonds? (Do not round intermediate calculations. Enter your answer as a percent..
What is the difference between the expected rate of return and the required rate of return? What does it mean if they are different for a particular asset at a particular point in time?
The appropriate capital budgeting decision rule is ____
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