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A number companies, Including Lichfield Design and Oxygen Optimization are considering undertaking project A which is believed by all to have a level of risk that is equal to that of the average-risk protect at Litchifield design. Project that would require an initial investment of 4 814 dollars and then produce an expected cash flow of 9,831 J dollars in 7 years Project A. has an Internal rate of return of 10.819 percent the weighted-average cost of capital for Litchfield Design is 8.77 percent and the weighted-average cost of capital for Oxygen Optimization is 10.17 percent What is the NPV that Oxygen Optimization would compute for project A?
You buy a share of stock, write a one-year call option with X = $24, and buy a one-year put option with X = $24. Your net outlay to establish the entire portfolio is $22.60. What must be the risk-free interest rate?
What is the face value of a zero coupon bond that has a yield of 8.5%, matures in 6 years, and is currently selling for $404.54? Round your answer to the nearest dollar. Show your work.
Suppose a ten-year, $1,000 bond with an 8.9% coupon rate and semiannual coupons is trading for $1,034.46. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? If the bond's yield to maturity change to 9.2% APR, what..
You bought one of Great White Shark Repellant Co.’s 6.2 percent coupon bonds one year ago for $1,038. These bonds make annual payments and mature 15 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is..
Consider a European-style option with payoff at expiry given by A(s(T)) = S(T). Explain why time zero value of this option must be S0. By using (6.11) show that asking for the discount expected payoff (12.1) to match this value leads immediately to t..
At the optimal debt to capital ratio of 50%, RAD has an interest coverage ratio of 2.198.Estimate the cost of capital at the optimal debt ratio. (You can still use that the current regression beta of 2.1 to arrive at the new beta)
A share of stock with a beta of .65 now sells for $46. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 6%, and the market risk premium is 9%. a. Suppose investors believe the stock will sell for $48 at year-end. Is the..
Skycrest Co., a furniture wholesaler, sells merchandise to Boyle Co. on account, $43,200, terms 1/10, n/30. The cost of the merchandise sold is $25,900. Skycrest Co. issues a credit memo for $8,600 for merchandise returned and subsequently receives t..
Lee Inc. purchases a $300,000 digital color printer, which will be fully depreciated according to the straight-line method over its 5-year economic life, for a 4-year publishing project. The printer will be sold for $75,000 at the termination of the ..
If you have $675,000 saved for retirement how many years will it last if you earn an annual interest rate of 7% and withdraw $46,000 at the beginning of each year? Assume you won $60 million in the lottery. You were given the option of receiving twen..
Whole Foods’ current dividend per share is $1.07. You expect dividends to grow at 5% per year into perpetuity. Whole Foods’ beta is 0.85. The current riskfree rate is 2.9%, and the expected return on the market portfolio is 7.4%. what is the intrinsi..
An employee filed a lawsuit against his previous employer claiming his former employer has not paid his overtime allowance for extra work that he was asked to work. Under which Article of the Labor Law would you use to file this claim? As the employe..
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