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The common stock of Jensen Shipping has an expected return of 9.96 percent. The return on the market is 8 percent and the risk-free rate of return is 4.5. What is the beta of this stock?
You plan to apply for a loan from Bank of America. The nominal annual interest rate for this loan is 12.06 percent, compounded daily (with a 365-day year). What is the effective annual rate, or EAR (annual percentage yield), of this loan? Round the a..
Digital Organics (DO) has the opportunity to invest $0.98 million now (t = 0) and expects after-tax returns of $580,000 in t = 1 and $680,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 14% with all-equity f..
A firm is contemplating whether to invest in a new project. The project requires an investment of 1 unit and can be “good” or “bad.” If the project is good, it pays off 1.5 units. If it is bad, it pays of 0.5 units. The manager and shareholders are r..
A semi annual coupon bond with face value of $1000 has a coupon rate of 8% and matures in 12 years. The market-determined discount rate on this bond is 9%. What is the price of the bond? Round to the penny. What is the coupon rate of a bond with a fa..
Yongman Electronics has decided to invest $10,000,000 in a new headquarters and needs to determine the best way to finance the construction. The firm currently has $50,000,000 of 10 percent bonds and 4,000,000 common shares outstanding. What is the d..
The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $1.4 million in annu..
Given the following data for a stock: beta = 1; risk-free rate = 4%; market premium = 6%. Calculate the expected rate of return on this stock using the capital asset pricing model. A portfolio is made up of 25% of stock 1, and 75% of stock 2. Stock 1..
What is the “signaling hypothesis” as it regards a firm’s dividend policy? How might the signaling hypothesis be used to justify the observed practice of “dividend smoothing” in the real world?
What would be the net present value of a microwave oven that costs $173 and will save you $82 a year in time and food away from home? Assume an average return on your savings of 5 percent for 5 years. (Hint: Calculate the present value of the annual ..
A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $1,200 per month for the next three years and then $2,400 per month for two years after that. If the bank is charging customers 8.00 percent APR, ..
It is April and a trader buys 100 September put options with a strike price of $20. The stock price is $17.37 and the option price is $5.21. At the expiration, the stock price becomes $18.89. Calculate the option profit to the trader.
A project has an initial cost of $35,000, expected net cash inflows of $8,000 per year for 7 years, and a cost of capital of 11%. What is the project's discounted payback period?
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