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1. What are the main differences when valuing a firm from an entity versus an equity perspective?
2. List any 2 disadvantages of using the dividends discounted approach when valuing a firm.
Efficient provision of a public good occurs at the level at which each member of society places the same value on the last unit. If a good is non rival and excludable, it will never be produced by the private sector. A road is non rival because one p..
Cortez Art Gallery is adding to its existing buildings at a cost of $2 million. The gallery expects to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over the next three years. Given a required rate of return of 10 percent, what..
Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist, has just finished his analysis of the mine site. Construct a spreadsheet to calculate the payback period, internal rat..
Fund manager John Smith hopes to buy a corporate bond to maximize his portfolio’s return. The one-year zero-coupon bond that John is considering has a default probability of 30%. What is the risk-neutral price of the insurance contract?
CP Venture Partners is looking at the possible investment of $1 million in an early-stage company (Startco). Given the stage of the investment, CP requires a 40% annual rate of return. The company earned $750,000 in EBITDA last year, and this amount ..
On 1/1/14 I invested $30,000. On 6/1/15, my fund is worth $32,000, and I deposit/withdraw M dollars. On 12/31/15, my fund is worth $30,000. The dollar-weighted return is equal to the time-weighted return in 2015. Calculate the value of M and M is not..
Dividend valuation with a constant growth model is similar to a growing perpetuity problem. Yield to maturity reflects the current market rate and it is the appropriate discount rate that matches the present value of the bond's cash flow stream and p..
Holding company Scully Corporation holds enough stock in company B to give it voting control of both firms. Consider the accompanying simplified balance sheets for these companies. What percentage of the total assets controlled by Scully Corporation ..
Changing technologies, like those you read about in Chapter 4 of your text, are sometimes ahead of laws that could regulate them; for that reason, you may find you have more protection against non-technological crimes and privacy invasions than techn..
A corporation has promised to pay $1,000 20 years from today for each bond sold now. No interest will be paid on the bonds during the 20 years, and the bonds are discounted at an interest rate of 7%, compounded semiannually. Approximately how much sh..
The Elkmont Corporation needs to raise $52.4 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $40 per share and the company’s under..
A stock is currently priced at $ 63 and has annual standard deviation of 43 percent. The dividend yield of the stock is 2 percent, and the risk-free rate is 4 percent. What is the value of a call option on the stock with a strike price of $ 60 and 45..
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