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A project has a debt-to-equity ration of 2/3, and it is kept constant. The unlevered return on equity is 8.94% and its net income is 1,250,000 for the 7 years of its life. The annual depreciation installment is 2,100,000 for the 7 years of the project. The interest rate paid by the company is 3.25%. The initial investment required from equity holders is 12,000,000. What is the NPV to equity holders if the tax rate is 32%?
Suppose Carter Chemical Company's management conducts a study and concludes that if Carter expands its consumer products division (which is less risky than its primary business, industrial chemicals), the firm's beta will decline from 1.1 to 0.9. Sho..
The portfolio weights for a portfolio consisting of multiple securities given multiple states of the economy are based on the:
You intend to hedge a floating rate payment on a $50 Million notional with a reset date of 3/18/16 and payment date of 6/20/16. The interest rate of the payment will equal 3-month libor as of 3/18/16. You short 50 EDH7 contracts at 99.25. What is you..
Micro Spinoffs Inc. issued 10-year debt a year ago at par value with a coupon rate of 5%, paid annually. Today, the debt is selling at $1,210. If the firm’s tax bracket is 20%, what is its percentage after-tax cost of debt? Assume a face value of $1,..
Calvin sells stock several years after he received it as a distribution from a qualified stock bonus plan. When the stock was distributed, he has a new unrealized appreciation of $7,500. Calvin also had ordinary income from the distribution of $29,00..
Delagold Corporation is issuing a zero-coupon bond that will have a maturity of fifty years. The bond's par value is $1,000, and the current yield on similar bonds is 7.5%. What is the expected price of this bond, using the semiannual convention?
Western Airline has decided to raise $5M in new equity by means of a rights offering. They have decided to issue 50,000 new shares. The stock currently sells for a rights-on price of $150 per share. How many shares are currently outstanding (before t..
Explain tax implications of insurance (i.e. life insurance proceeds, health care reimbursement, flexible spending accounts, disability premiums/proceeds)
Bond investment problem. Suppose an investor, desiring to earn a higher interest than the average paid by bank on savings, purchases two bonds, say bond A and bond B, and intends to sell them immediately after getting the third coupon payment. For wh..
You will be paying $5,000 a year in tuition expenses at the end of the next 3 years. Bonds currently yield 30%. and if you plant to fund your obligation using a one-year zero-coupon bond and a perpetuity, how much of each of these bonds (in market va..
Calculate for Best Inc., assuming that (1) investors expect a 2.5% rate of inflation in the future, (2) the real risk-free rate is 1.5%, (3) the market risk premium is 3.0%, (4) the firm has a beta of 1.50, and (5) its realized rate of return has ave..
Sodaco is considering producing a new product: Chocovan soda. Sodaco estimates that the annual demand for Chocovan, D(in thousands of cases), has the following mass function: P(D 30) .30, P(D 50) .40, P(D 80) .30. Considering the reward for each acti..
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