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Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.
Time 0 1 2 3 4 5 6
Cash Flow -1,100 80 520 720 720 320 720
Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?
A stock has an expected return of 11.5 percent, its beta is 1.65, and the expected return on the market is 9.2 percent. What must the risk-free rate be?
It is often stated that anyone with a pencil can calculate financial ratios, but it takes a brain to interpret them. What kinds of things should the analyst keep in mind when evaluating the financial statements of a given firm?
What is the company's cost of common equity if all of its equity comes from retained earnings? What would be the cost of equity from new stock?
The shareholders of Motive Power Corp. need to elect three new directors to the board. There are 14, 600,000 shares of common stock outstanding, and the current share price is $10.95. If the company uses cumulative voting procedures, how much will it..
You are a swap dealer, and you have just paid the fixed rate (and received 3 month LIBOR) on a 5-year interest rate swap. Both the Eurodollar futures market and the Treasury market are very liquid today. Qualitatively (no numbers) what transaction(s)..
Harris Enterprises, Inc. offers $90 par-value preferred stock that pays a 15% annual dividend. How much are you willing to pay for one share of this stock if you want to earn 15 percent on an equity investment of this level of risk?
You must evaluate a proposal to buy a new machining station. The base price is $125,000, and shipping and installation costs would add another $15,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $70,000. The..
A bank has duration of assets of 3.96, total assets of $181 million, duration of liabilities of 4.8, total equity equal to 9.5% of total assets, rate-sensitive assets of $76.75 million, and rate-sensitive liabilities of $50.8 million. What is the ban..
Assume? Evco, Inc. has a current stock price of $45.91 and will pay a $1.75 dividend in one? year; its equity cost of capital is 14%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justif..
ccording to its annual report, as of January 31, 2012, Target’s borrowing costs averaged 4.6 percent, and its tax rate was 34.27 percent.
The Modigliani Miller (MM) theorem says that under certain assumptions leverage does not affect firm value.
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 24 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 14 percent, and the company just paid a di..
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