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Mark Corp. issued a bond with a maturity of 25 years and a semiannual coupon rate of 12 percent 3 years ago. The bond currently sells for 94 percent of its face value. The book value of the debt issue is $40 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 14 years left to maturity; the book value of this issue is $45 million and the bonds sell for 53 percent of par. The company’s tax rate is 38 percent. a) What is the company’s total book value of debt? b) What is the company’s total market value of debt? c) What is your best estimate of the aftertax cost of debt?
Seaborn Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 17 percent?
Schweser Satellites Inc. produces satellite earth stations that sell for $100,000 each. The firm’s fixed costs, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm’s assets (all equity financed) ..
The real risk-free rate is 2.75%, and inflation is expected to be 3.25% for the next 2 years. A 2-year Treasury security yields 9.5%. What is the maturity risk premium for the 2-year security?
Based on the following information: Rate of Return if State Occurs State of Probability of Economy State of Economy Stock A Stock B Recession .20 .06 − .20 Normal .55 .07 .13 Boom .25 .11 .33 Calculate the expected return for the two stocks.
"The Norcross Fiber Company is considering automating its piece-goods screen-printing system at a cost of $23,000.
A 2-year Treasury security yields 8.25%. What is the maturity risk premium for the 2-year security?
Felicia & Fred recently hired a new designer who has considerable experience in product development of handbags and small leather goods. Name three working capital elements that may change as a result of expansion into a new product line. Indicate wh..
A Treasury bill with 88 days to maturity is quoted at 99.540. What is the bank discount yield, the bond equivalent yield, and the effective annual return?
Divido Corporation is an all-equity financed firm with a total market value of $100 million. The company holds $10 million in cash-equivalents and has $90 million in other assets. What will be the impact on the price of its shares and on the wealth o..
Russell’s has annual revenue of $387,000 with costs of $216,400. Depreciation is $48,900 and the tax rate is 30 percent. The firm has debt outstanding with a market value of $182,000 along with 9,500 shares of stock that is selling at $67 a share. Th..
Sims Computing has $1,625,000 in current assets and $636,000 in current liabilities. They wish to increase their inventory levels from the current level of $400,000. They will borrow on a short term note payable to acquire the additional inventory. w..
ACME has a management contract with its newly hired president. The contract requires a lump sum payment of $25 million be paid to the president .
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