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Question
ABC Corp. is considering an investment project over the next period. It has an equal chance of success and failure. If it succeeds, the firm's assets will have a market value of $40 million, and if it fails, the market value will drop to $10 million. The current market value of the firm's asset is $25 million. Also, the firm currently has bonds outstanding with $15 million of promised payment to bondholders at their maturity, which is the end of the period. What is the firm's equity value? Assume that the risk-free rate over the next period is 10%.
What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant?
You have just taken out a $16,000 car loan with a 8% APR, compounded monthly. The loan is for 5 years. When you make your first payment in one month, how much of the payment will go toward the principal of the loan and how much will go towards intere..
You are an analyst evaluating Up-and-Coming Airlines Inc., a very hot potential acquisition candidate your company is considering. Up-and-Coming currently has no debt and you estimate that it should be able to generate $1 million a year from its exis..
Break-even analysis The Hartnett Corporation manufactures baseball bats with Pudge Rodriguez’s autograph stamped on them. Each bat sells for $13 and has a variable cost of $8. There are $20,000 in fixed costs involved in the production process. Compu..
Will the following changes in working capital accounts result in an increase or decrease in cash flows?
A newly issued 10- year maturity, 5% coupon bond making annual coupon payments is sold to the public at a price of $810. The bond will not be sold at the end of the year. The bond is treated as an original issue discount bond. What will be an investo..
what is the operating cash flow, or OCF?
The tax rate is 30% and the required return on the project is 12%. What will the year 2 cash flows for this project be?
Compute the cost of retained earnings (or internal equity) if both earnings and dividends are expected to grow at a constant rate of 9 percent.
Keenan Co. is expected to maintain a constant 4.2 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 6.0 percent, what is the required return on the company’s stock?
What is the value of the firm's tax shield (i.e. the change in firm value due to the use of leverage in the capital structure)?
What is the duration of a two-year bond that pays an annual coupon of 10 percent and has a current yield to maturity of 12 percent?
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