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Acetate, Inc., has equity with a market value of $22.3 million and debt with a market value of $11.15 million. Treasury bills that mature in one year yield 4 percent per year, and the expected return on the market portfolio is 10 percent. The beta of the company’s equity is 1.08. The company pays no taxes. a. What is the company's debt–equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Debt–equity ratio b. What is the company’s weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Weighted average cost of capital % c. What is the cost of capital for an otherwise identical all-equity company? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of capital %
Perform a sensitivity analysis by calculating the breakeven point for all combinations of the sale price per unit and variable cost per unit.
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If Firm B shareholders are to be paid the maximum price determined in part (a) via a new stock issue, how many new shares will be issued, and what will be the postmerger stock price?
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There are 3,000 common shares outstanding with a total market value of $150,000. The interest rate on the new debt will be 14%. Assume no taxes.
Consider a European call option on a non-dividend-paying stock where the stock price is $52, the strike price $50, the risk-free rate is 5%, the volatility is 30%, and the time to maturity is one year. What is the value of the option to the buyer if..
What is the relationship between present value and future value? What is the difference between an ordinary annuity and an annuity due? Give examples of each.
Suppose that at time 0 you buy a 6%-coupon 30-year bond priced at par, and at time 0.5 you sell this bond at a yield of 8%. What is your time 0.5 payoff per $1 of initial investment? What is the rate of return on your investment
Why do property insurance policies contain exclusions? Illustrate your answer with examples from the HO.
A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $1,300 per month for the next three years and then $2,600 per month for two years after that. If the bank is charging customers 8.25 percent APR, ..
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