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1. A firm issued $15 million in preferred stock at a price of $3.25 per share. The preferred shares carry a 13% dividend or $0.42 annually. After paying fees and costs, the firm realizes $2.89 per share issued. What is the cost of capital for this issuance of preferred stock?
2. Suppose S=$100, K=$95, r=8% (continuously compounded, t=1, alpha=30%, and beta=5%. Explicitly construct an eight-period binomial tree using the lognormal expressions for u and d. Compute the prices of European and American calls and puts.
3. A firm offers a 15-year maturity bond with $1,000 face value and 6% coupon rate. The current market price for the bond is $998. Selling the bonds costs the firm $60 per share. What is the after-tax cost of his debt, assuming a 34% corporate tax?
When it matures at the end of 7.5 years it pays out $1,000. If investors wish to earn 2.35% per year on this bond investment, what is the current price of the bond
Company A can borrow yen at 16.0 percent and dollars at 14.6 percent. Company B can borrow yen at 14.6 percent and dollars at 14.133 percent. If A would like to borrow yen and B would like to borrow dollars. The financial intermediary charges a fee o..
You plan to purchase a $200,000 house using either a 30-year mortgage obtained from your local savings bank with a rate of 7.25 percent, or a 15-year mortgage with a rate of 6.50 percent. You will make a down payment of 20 percent of the purchase pri..
Determine if the replacement should occur by estimating the replacement project’s NPV and IRR.
FX, Inc. is a volume manufacturer of high technology automotive mirrors (including cell link and voice activation).
Assuming the stock split will have no effect on the total market value of its equity, what will be the company's stock price following the stock split?
XYZ is interested in buying a new machine which is expected to cost $85,000. In addition, the company will pay $15,000 in shipping and $5,000 in installation costs. The MACRS category is five years and the company expects to sell the machine at 25% a..
What is the effect on the cartel's profit-maximizing price if a new outside source of supply now develops that can provide 10 million barrels of oil per day at any price above $5 per barrel?
If other investments of equal risk earn 6% annually, what is its present value? what is its future value?
a. Which restaurant will pay a higher wage for janitors? Why? b. Which restaurant will hire more janitors? Why?
Based on all of the above information, will this company have a good return on equity or a poor return on equity?
Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?
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