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A company's 5-year bonds are yielding 7.75% per year. The Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is 2.3%. The average inflation premium is 2.5% and the maturity risk premium is estimated to be 0.1 x (t-1)%, where t = number of years to maturity. If the liquidity premium is 1%, what is the default risk premium?
What will be the firm’s typical value for its accounts receivable period?
Vidal Corporation has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1, 120. What is t..
The pump's end-of-year salvage values over the next 5 years are $42K, $40K, $38K, $32K, and $26K. Determine the pump's economic life.
The historical return on equity (ROE) of 13 percent is expected to continue in the future. What is the required rate of return on the stock?
We are examining a new project. We expect to sell 6,100 units per year at $75 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $75 × 6,100 = $457,500. If success and failure are equally lik..
Consider the following two mutually exclusive projects. What is the payback period for each project? What is the discounted payback period for each project?
Matt is analyzing two mutually exclusive projects of similar size. Both projects have 5-year lives. Project A has an NPV of $18,389, a payback period of 2.38 years, an IRR of 15.9 percent, and a discount rate of 13.6 percent. Project B has an NPV of ..
The Niendorf Corporation produces teakettles, which it sells for $15 each. Fixed costs are $700,000 for up to 400,000 units of output. Variable costs are $10 per kettle. What is the operating breakeven point? Illustrate by means of a chart.
You are considering buying a house for $200,000. You have $40,000 in your bank account which pays 1% APR compounded monthly. If you contribute 10% of the price of the house as a down payment, the terms of your mortgage will be an original balance of ..
A $1,000 par-value, fixed coupon bond has 15 years remaining until maturity. The bond has an annual coupon rate of 10 percent and it pays quarterly coupon payments. If the market annual rate for this bond is 8 percent, what is the price of the bond?
Corporations employ individuals who are taxpayers. These individuals in turn pay tax on their wages. In addition, when corporations distribute profits to shareholders, these dividends are taxed. What do you think of this tax policy idea? Do you think..
The December 31, 2013, balance sheet of Schism, Inc., showed $151,000 in the common stock account and $2,760,000 in the additional paid-in surplus account. The December 31, 2014, balance sheet showed $161,000 and $3,060,000 in the same two accounts, ..
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