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What is meant by risk aggregation and risk decomposition? Which requires an in-depth understanding of individual risks? Which requires a detailed knowledge of the correlations between risks?
Assume that a company's dividends per share are projected to remain at 1.10 in perpetuity, and that its per share stock price is $22. Estimate the company's cost of equity capital.
Airborne Airlines Inc. has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $106 and is currently selling for $860. Airborne is in a 40 percent tax bracket. Compute the yield to maturity o..
Selecting profit maximization as the primary goal of the firm may not increase its value, because a profit-only focus has several drawbacks. List and describe these drawbacks.
If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and..
DEC Technologies is a privately held developer of advanced security systems based in Boston. As part of your business development strategy, in late 2008 you initiate discussions with DEC’s founder about the possibility of acquiring the business at th..
Calculate the mean and variance of the earnings per share for each company. - Explain how some investors might choose A and others might choose B if preferences are based on mean and variance.
Breakeven cash inflows The One Ring Company, a leading producer of fine cast silver jewellery, is considering the purchase of new casting equipment that will allow it to expand its product line. How would the minimum yearly cash inflow change if the ..
The return on the risk-free asset is 4% and the return on the market is 14%. What is the portfolio expected return if you invest 35% in asset A, 45% in B, and 20% in an asset that exactly follows the overall market?
Last year the selling corporation had earnings before interest and taxes (operating income) equal to $1 million. it paid $200,000 in dividends to its stockholders and $100,000 in interest to its creditors. During the year, the company also repaid a b..
Given the exponential utility function U(W) = - a) Graph the function, assuming a > 0. - Does the function exhibit-positive marginal utility and risk aversion?
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $645,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $103,000. If the..
Essence of Skunk Fragrances, Ltd., sells 5,800 units of its perfume collection each year at a price per unit of $388. All sales are on credit with terms of 3/10, net 50. The discount is taken by 35 percent of the customers. What is the amount of the ..
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