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A firm has 100,000 shares of stock currently outstanding. Each share currently has a true value of $70. Suppose the firm issues 20,000 shares of new stock at the following prices: (a) $75, (b) $65, and (c) $40. The firm takes the funds raised in the issue and invests in securities (i.e., a 0 NPV project). What will be the effect of each of the alternative offering prices on the long-run market price of the shares after the issue assuming that in the long-run the market price for the stock will reflect the stock’s true value? (Ignore issues such as taxation and transactions costs)
What is your marginal tax rate? What is your average tax rate? Do these rates differ? Why or why not?- What is the likely effect on the labor supply of married women?
Mulroney Corp. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,000 at the end of Years 1 and 2, respectivel..
Consider a K,t European put option on this security, and suppose that K > s1 > s2. What is the no-arbitrage cost of the put?
Joe secured a loan of $12,000 three years ago from a bank for use toward his college expenses. The bank charges interest at the rate of 4%/year compounded monthly on his loan. Now that he has graduated from college, Joe wishes to repay the loan by am..
Discuss the deductibility or not of the following amounts: Interest paid in respect of an overdraft used to purchase additional equipment used in the business. $1,200 paid to lawyers for advising and preparing a partnership agreement. In a chart of a..
What impact does asymmetric information have on the optimal level of leverage? In your answer, be sure to describe the implications of adverse selection and the lemons principle for equity issuance, as well as the empirical implications.
Explain the difference between a bull market and a bear market. Discuss the frequency with which returns as bad as those during 2007-2009 occur. How would you characterize the current state of the stock market?
What leverage ratio must a farmer achieve in order to grow at a 12% rate?
Onnie Banko Swimwear recently issued $75.00 par-value preferred stock that pays a 7.00% dividend rate per year. The stock has a beta of 1.09, and the current risk-free rate is 2.40% and the market return (RM) is 11.80%. Assuming that CAPM holds, what..
Calculate the 2015 ROI for HiReturns as shown in the "Insurer Economics" lecture in class.
Show the new equity account balances after the stock dividend distribution.
You plan to invest 75% of your funds in Heebie Ltd shares and 25% in Jeebie Ltd shares. The expected return for Heebie is 10% and its standard deviation of returns is 5%. The expected return for Jeebie is 12% and its standard deviation of returns is ..
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