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Suppose that the spot exchange rate of EUR is 1.1960 USD for 1Euro. Suppose that the 3 months USD interest rate is 1.32% annualized and Euro interest rate is negative 0.331% annualized (rates are continuously compounded) What is the 3 month forward exchange rate? What does it mean for interest rate to be negative?
Which one of the following demonstrates the use of the CAIV philosophy?
What is the net present value of a project that has an upfront cash outlay of $30,000, and generates cash inflows of $15,000 in year 1, $20,000 in year 2, and $25,000 in year 3 assuming that the company’s cost of capital is 15% per year? (Show calcul..
Quixote Industries currently has $6 million in debt for every $10 million in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which of the following will not change as a result of..
A proposed new project has projected sales of $85K, costs of $43K, and depreciation expense of $3K. All figures are annual figures. The tax rate is 35%. Calculate annual operating CF for this project.
An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air ..
A stock is presently selling for $100. over each of the next two months, the stock will either increase of decrease in value by 9%, and will not pay any dividends. The risk-free rate is 2% per month. What is the value of the option if it is an Americ..
What effect do you think each of the following items should have on the interest rate that a firm must pay on a new issue of long-term debt? Indicate whether each factor would tend to raise, lower, or have an indeterminate effect on the interest rate..
Besides lower expense explain another advantage of using electronic payments rather than paper checks. How do firms raise capital in the financial markets?
What would you suggest they do? Do you agree that bond investments are less risky than equity investments?
Within a manager’s departmental operating budget, which of the following will probably not be included?
Calculate the weighted average cost of capital for the company, Lowe’s. As you learned, a firm considered less risky by investors has a lower cost of capital and higher firm value. Like individuals, firms can benefit from risk management.
Stock Y has a beta of 1.35 and an expected return of 15.3 percent. Stock Z has a beta of 0.8 and an expected return of 11.2 percent. Required: What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?
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