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Analysis of 60 monthly rates of return on United Futon common stock indicates a beta of 1.49 and an alpha of –0.24% per month. A month later, the market is up by 5.4%, and United Futon is up by 6.4%. What is Futon’s abnormal rate of return?
When calculating WACC and applying the results to both unlevered (no debt) and levered (debt) firms, the levered firm is shown to be more valuable. Two identical firms and the firm with debt is more highly valued. Does this make sense? Why or Why not..
An investment project requires a net investment of $100,000. The project is expected to generate annual net cash inflows of $25,000 for the next 5 years. The firm's cost of capital is 12 percent. Determine the payback period for the project. An inves..
Calculate the monthly mortgage payment of principal and interest for the a loan with an initial balance of 150,000, an annual stated interest rate of 6%, and 30 years to maturity. Use Excel to develop this response and present your result within a se..
You bought a semiannual interest rate cap on $8 million notional with K = 3% (annually, rate quotes are almost always in annual terms). Today is one of the interest settlement dates and you realize that six months ago the (annual) LIBOR rate was 4%. ..
Union Brick Inc. (UBI) has a total market value of $200 million, consisting of 2 million shares of common stock selling for $50 per share and $100 million of 10 percent perpetual bonds currently selling at par. What is UBI's weighted average cost of ..
One of the unpleasant secrets about using your credit card for a cash advance is that there is usually a 6 to 8 percent upfront fee on the amount. The APR on the cash advance is typically lower than the APR for normal purchases. Payments do not apply..
What is the purpose of conducting an experiment?
A project has been assigned a discount rate of 12 percent. If the project starts immediately, it will have an initial cost of $480 and cash inflows of $350 a year for three years. If the start is delayed one year, the initial cost will rise to $520 a..
Assume that the forward exchange rate is for 90 days forward and the interest rates are annualized 90- day rates in Question 9. Can a trader earn covered interest arbitrage profits?
Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 10 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost of 9 percent annually. ..
Reliable Gearing currently is all-equity-financed. It has 28,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $380,000 with the proceeds used to bu..
Assume the risk free rate is 6% and the market risk premium is 7.5%. Ragnarok Unlimited Corp. (RUC) has a beta of 4, and it offers a return of 27% at the moment. Is RUC fairly priced according to the CAPM? Why or why not? If the price is not fair, wh..
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