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Dave and Marlene Carter live in the Boston area, where Dave has a successful orthodontics practice. Dave and Marlene have built up a sizable investment portfolio and have always had a major potion of their investments in fixed-income securities. They adhere to a fairly aggressive investment posture and actively go after both attractive current income and substantial capital gains. Assume that it is now 2010 and Marlene is currently evaluating two investment decisions; one involves an addition to their portfolio, the other a revision to it. The Carters' first investment decision involved a short-term trading opportunity. In particular, Marlene has a chance to buy a 7.5%, 25 year bond that is currently priced at $852 to yield 9%; she feels that in two years the promised yield of the issue should drop to 8%. The second is a bond swap. The Carters hold some Beta corporation 7%, 2023 bonds that are currently priced at $785. They want to improve both current income and yield-to-maturity, and are considering one of three issues as a possible swap candidate: (a) Dental Floss, Inc. 7.5%, 2035, currently priced at $780; (b) Root Canal Products of America, 6.5%, 2023, selling at $885; and (c) Kansas City Dental Insurance, 8%, 2024, prices at $950. All of the swap candidates are of comparable quality and have comparable issue characterisitcs. a) Reguarding the short-term trading opportunity: 1. What baisc trading principal is involved in this situation? 2. If Marlene's expectation are correct, what will the proce pf this bond be in 2 year? 3. What is the expected return on this investment? 4. Should this investment be made? Why?
Suppose you have determined the profitability of a planned project by finding the present value of all the cash flow from that project.
Janjigian Company's stockholders have provided $15,250 of capital, part when they purchased new issues of stock and part when they allowed management to retain some of the company's earnings.
If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year?
Describe an unweighted price index and describe how you would construct such an index.
Integrated Potato Chips paid a $1 per dividend yesterday. You expect the dividend to grow steadily as a rate of 4 percent every year. Determine the expected dividend in each of the next 3 years?
Assume you are the money manager of a four million investment fund. The fund consists of four stocks with the following investments and betas:
what is financial analysis?
You have just taken out a 5 year loan from a bank to purchase an engagement ring. The ring costs $5,000. You plan to put $1,000 down and borrow $4,000.
Why does money have a time value? Can you provide at least one real-life scenario in which you can apply the concept of "time value of money?"
Telecom Systems can issue debt yielding 12 percent. The company is in a 30 percent bracket. What is its aftertax cost of debt?
How should the capital structure weights used to calculate the WACC be determined? Explain.
Based on fixed costs of $11,520,000, variable costs of $11.25 per unit, production volumes of 4,975,000 units, with an interest expense of $1,326,400
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