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The real risk-free rate, r*, is 3.35%. Inflation is expected to average 2.8% a year for the next 4 years, after which time inflation is expected to average 5.1% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10.7%, which includes a liquidity premium of 0.75%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.
What is the coupon payment for this? bond? Draw the cash flows for the bond on a timeline.
A corporation plans to invest in a small project which costs a cone-time expenditure of $600,000 at year 0 and offers an annual return of $160,000 each in the next five years. It intends to finance this project by borrowing from a local bank which re..
If the same company from the previous question used 5% ROR for loans, 9% ROR for bonds, what is the Weighted Average Cost of Capital (WACC)?
Estimate the cost of capital appropriate for the evaluation of the incremental cash flows associated with the Collinsville investment. Estimate the weighted average cost of capital appropriate for discounting the Collinsville plant’s incremental cash..
Credit Policy Evaluation The Harrington Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.5 percent per period. Calculate the NPV of the decision to change credit policies.
We want to compute the EPS and growth rate of Ninni. It has 2 m shares outstanding and $80m of book value of equity. Ninni expects to sell $20m worth of sales and have EAT of $5m and keep 40% of its profit. Furthermore, it has $100m of assets. Its co..
Explain what foreign exchange risks BMW faced, and how they elected to mitigate or reduce these risks. Did you agree or disagree with this strategy.
Tool Manufacturing has an expected EBIT of $60,000 in perpetuity and a tax rate of 35 percent. The firm has $115,000 in outstanding debt at an interest rate of 7.2 percent, and its unleveraged cost of capital is 10 percent. What is the value of the f..
Compare the hedging alternatives for the MYR with a scenario under which Yankee remains unhedged. Do you think Yankee should hedge or remain unhedged? If Yankee should hedge, which hedge is most appropriate?
What is an optimal hedge and how do we calculate it? Compute the number of contracts we need in the hedge. How do we decide if we should implement the hedge?
What measures and precautions does the SEC take to reduce the amount of these financial schemes that plague our financial systems?
Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .65 .11 .19 .37 Bust .35 .12 .06 −.05 a. What is the expected return on an equally weighted portfolio of these three stocks?
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