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Default Risk Premium
The real risk-free rate, r*, is 2.2%. Inflation is expected to average 3.1% a year for the next 4 years, after which time inflation is expected to average 5.2% a year. Assume that there is no maturity risk premium. An 11-year corporate bond has a yield of 8.65%, which includes a liquidity premium of 0.3%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.
Assume that a new project will annually generate revenues of 1,800,000 and cash expenses (including both fixed and variable costs) of 600,000 while increasing depreciation by 190,000 per year. In addition, the firm’s tax rate is 37%. Calculate the op..
Time value An Iowa state savings bond can be converted to $100 at maturity 6 years from purchase. The state must sell its bonds
During the year, the Senbet Discount Tire Company had gross sales of $1.26 million. The firm’s cost of goods sold and selling expenses were $545,000 and $235,000, respectively. The firm also had notes payable of $1,000,000. What was the firm’s net in..
Henry swaps his shopping center for Sarah’s office building, and the exchange qualifies as a like-kind exchange. Henry’s adjusted basis for the shopping center is $600,000 and the center is subject to a liability of $180,000. The FMV of Sarah’s offic..
Calculate the value of delta if the value in each of the above accounts is equal after 7.25 years.
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight- line ba..
Cooke Co. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $430,000 in debt. Plan II would result in 12,600 shares of stock and $275,200 in debt. What is the price per share of equity under Plan I? What ..
Cavo Corporation expects an EBIT of $25,250 every year forever. The company currently has no debt, and its cost of equity is 12 percent. The corporate tax rate is 35 percent. What will the value of the firm be if the company takes on debt equal to 40..
Find one key factor that has a negative impact on revenue. Recommend revenue strategy for the organization in scenario to improve its revenue cycle management.
Calculate the covariance between two assets. Assume the mean return on Asset A is 8% and the mean return on Asset B is 12%.
A stock is expected to pay a dividend of $1.30 one year from now, $1.70 two years from now, and $2.10 three years from now. The growth rate in dividends after that point is expected to be 8% annually. The required return on the stock is 13%. The esti..
Kevin just won the lottery, and he must choose among three award options. He can elect to receive lump sum today of $62 million, to receive 10 end-of-year payment of $9.5 million, or to receive 30 end of year of $5.6 million. If he expect to earn 7% ..
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