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A company’s asset is worth 20 now, and will be worth 16 (in the bad state) or 24 (in the good state) with equal probabilities tomorrow. The riskfree interest rate is 10%. The company lives for only one period. It promises to repay 18 to the debtholders next period.
a) What is the value of debt?
b) What is the expected yield of the debt? How does it compare with the riskfree rate?
c) What is the value of equity?
d) Suppose the company receives a government loan guarantee. What is the loan guarantee worth? What is the value of the company after it receives the loan guarantee? Why is the company worth more?
Rocco and Stella Thompson are in their 20s and are just about to make one of the most important commitments of their lives is buying a home and starting a family. They have been living in a small apartment in Denver, since their marriage and college ..
You have developed a new a new recreational tennis racket with tennis great Jimmy Connors. You have paid Jimmy Connors for his involvement in the project $250,000. The racket is state of the art and guaranteed to correct any backhand. What will the a..
Your company's target capital structure is 30% debt and 70% equity. The company's after-tax cost of debt is 8%. The company's beta is 1.3, the risk-free rate is 4%, and the market risk premium is 6%. The marginal tax rate is 35%. What is your company..
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What is the dividend yield on Watson's common stock?
You own $19,175 of Human Genome stock that has an assumed beta of 3.91. You also own $11,700 of Frozen Food Express (assumed beta = 1.83) and $1,625 of Molecular Devices (assumed beta = 0.82). What is the beta of your portfolio?
what interest rate are you being charged if you decide to use the repayment plan as opposed to the lump sum?
WHAT IS THE PRICE PER SHARE OF THE COMPANY'S STOCK?
The current price of a non-dividend-paying stock is $58. Over the next six months it is expected to rise to $85 or fall to $44. Assume the risk-free rate is zero. What is the risk-neutral probability of that the stock price will be $44 (i.e. the risk..
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