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Acort Industries owns assets that will have? a(n)75% probability of having a market value of $56 million in one year. There is a 25% chance that the assets will be worth only $26 million. The current? risk-free rate is 8%?, and? Acort's assets have a cost of capital of 16%.
a. If Acort is? unlevered, what is the current market value of its? equity?
b. Suppose instead that Acort has debt with a face value of $26 million due in one year. According to? MM, what is the value of? Acort's equity in this? case?
c. What is the expected return of? Acort's equity without? leverage? What is the expected return of? Acort's equity with? leverage?
d. What is the lowest possible realized return of? Acort's equity with and without? leverage?
Fernando Designs is considering project that has the following cash flow data. The required rate of return is 10 percent. What is project discounted payback?
Yield to Call- Five years ago, Wilson Corporation sold a 20-year bond issue with a 13% annual coupon rate and an 8% call premium. Today, they called the bonds. The bonds were originally sold at their face or par value of $1,000. Compute the realized ..
Carter Enterprises can issue floating-rate debt at LIBOR or fixed-rate debt at 9.9 percent. Brence Manufacturing can issue floating-rate debt at LIBOR + 1.5 percent or fixed-rate debt at 10.5 percent. What are the net payments of Carter and Brence i..
Central Food Brokers is considering issuing a 20-year convertible bond that will be priced at its par value of $1,000 per bond. The bonds have a 12 percent annual coupon interest rate, and each bond could be converted into 30 shares of common stock. ..
Assume that you are valuing a high-growth firm with high risk (beta) and large reinvestment needs (high reinvestment rate).
Huntsman Chemical is a relatively small chemical company located in Port Arthur, Texas. The firm’s management is contemplating its first international investment, which involves the construction of a petrochemical plant in São Paulo, Brazil. The prop..
Assume the market is in equilibrium with the required return equal to the expected return.
A stock has a required return of 11%; the risk-free rate is 2.5%; and the market risk premium is 6%. What is the stock's beta? If the market risk premium increased to 10%, what would happen to the stock's required rate of return? Assume the risk-free..
A company’s stock currently sells for $59 per share. Last week the firm issued rights to raise new equity. To purchase a new share, a stockholder must remit $14 and 4 rights. What is the ex-rights stock price?
Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Assets (Market value = book value) $3,000,000 EBIT $500,000 Cost of equity, rs 10% Stock price, Po $15 Shares outstandin..
An investor in the 20% Marginal tax bracket is looking at buying Harrisburg, PA notes. The Yield is 4.25% on the notes. What is the Taxable Equivalent Yield?
Prepare an amortization schedule for a five-year loan of $56,000. Assume the loan agreement calls for a principal reduction of $11,200 every year. The interest
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