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Dempsey's Ltd has debt claims of $400 (market value) and equity claims of $600 (market value). If the cost of debt financing (after tax) is 11 percent and the cost of equity is 17 per cent, then what is Dempsey's weighted average cost of capital?
Now add another option, one on the same stock with an exercise price of 105 and the same expiration. Reconstruct the problem by delta and gamma hedging. Explain why the target was or was not achieved.
The following selected transactions relate to liabilities of Rocky Mountain Adventures. Rocky Mountain's fiscal year ends on December 31.
Cash Flow to Stockholders and Creditors Could a company's cash flow to stockholders be negative in a given year? (Hint: Yes.) Explain how this might come about. What about cash flow to creditors?
Suppose you borrow $1,000 at 6 percent and will repay it in one payment at the end of one year. Use the simple interest formula to determine the amount.
Given the estimated sales forecast and the estimated relationship between inventories and sales, what are your forecasts of the company's year-end inventory level? Round your answer to the nearest hundredth of million dollar.
If Wilkinson, Inc., has an equity multiplier of 1.57, total asset turnover of 1.7, and a profit margin of 6.7 percent, what is its ROE? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 3..
Why do financial managers have some difficulty applying CAPM in financial decision making? Generally, what benefit does CAPM provide them?
Division A within the firm has an estimated beta of 1.08 and is the riskiest of all of the firm's operations. What is an appropriate cost of capital for division A if the market risk premium is 9.5 percent?
If the market is expected to return 8%, the risk free rate is 1%, and the corporate tax rate is 30%, what is Apple's WACC?
Calculating Future Values. You have $20,000 you want to invest for the next 40 years. You are offered an investment plan that will pay you 7 percent per year.
How much would you pay an insurance company now for an annuity product that will pay you $450 a month for the next 10 years, and the current interest rate is 7 percent.
An investor must choose between two bonds: Bond A pays $72 annual interest and has a market value of $925. It has 10 years to maturity. Bond B pays $62 annual interest and has a market value of $910. It has two years to maturity. Assume the par value..
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