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Suppose you were selling your home. A buyer has offered to pay you $115,000 now and another $85,000 in 2 years. What is the value today of the payment received in 2 years, given your required rate of return is 7 percent?
The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,410,000, and the December 31, 2014, balance sheet showed long-term debt of $1,600,000. The 2014 income statement showed an interest expense of $95,000. Required: What w..
Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at 7% a year. Dozier’s WACC is 13%. What is Dozier’s horizon value? W..
Currently Otter Inc has 100,000 shares with a price of 10$ per share and no debt. Corporate income taxes are 30%. Suppose that tomorrow Otter suddenly and unexpectedly decides to borrow money and repurchase 20,000 shares. How much will it borrow?
Under what circumstances will the seller (or writer) of the option earn a positive or zero profit?
Suppose a stock had an initial price of $115 per share, paid a dividend of $3.00 per share during the year, and had an ending share price of $144. Compute the percentage total return. What was the dividend yield?
You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with 2 risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance..
Dryden, Corp. has 500,000 shares of common stock outstanding, a P/E ratio of 11, and $900,000 earnings available for common stockholders. What was the total value of your investment in Dryden stock before the split? What should be the total value of..
Compare and contrast the gain and loss potential for investors holding the following positions: long forward, short forward, long call, short call, long put, and short put. Indicate what the terms symmetric and asymmetric mean in this context.
Green Landscaping, Inc. uses net present value (NPV) when evaluating projects. Green Landscaping's cost of capital is 8.84 percent. What is the NPV of a project if the initial costs are $1848903 and the project life is estimated as 6 years? The proje..
A portfolio has 30% of its value in IBM shares and the rest in Microsoft (MSFT). The volatility of IBM and MSFT are 35% and 30%, respectively, and the correlation between IBM and MSFT is 0.3. What is the standard deviation of the portfolio?
For the given cash flows below, assume the cash flow is the same in the next 2 years. Compute the NPV for each project, and compute the incremental IRR. Compare and explain why NPV always gives the correct decision. Why should investors who identify ..
A firm expects to increase its annual dividend by 20 percent per year for the next two years and by 15 percent per year for the following two years. After that, the company plans to pay a constant annual dividend of $3 a share. The last dividend paid..
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