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Suppose there are two companies, Company A and Company B. Company A has assets of $100M and Liabilities of $50M. Company B has assets of $30B and Liabilities of $25B. What percentage decline in the value of assets would be required for Company A to have no equity? How about Company B? Only taking this analysis into account, which company is more at risk of becoming insolvent?
The real risk-free rate, r*, is 1.85%. Inflation is expected to average 2.55% a year for the next 4 years. What is its default risk premium?
Parents deposit $5,000 into a savings account at the end of each year for 22 years to help their child pay for college. The savings account pays 6% interest per year, compounded monthly. The child withdrawals an equal sum twice per year while in coll..
Ollie Mace has recently been appointed controller of S. Dilley & Company, a family-owned manufacturing firm founded 28 years ago. The firm manufactures automotive parts. Its four major operating divisions are heat treating, extruding, small parts sta..
Jake has a bond and a stock with a combined value of $1,500. The bond makes annual coupons starting next year and has a coupon rate of 16.24%. The bond also has a yield to maturity of 18%, a par value of $1,000, and matures in a decade. The stock is ..
Assume you have a 2-year, $1000 par, 5% coupon (semiannual) bond, currently priced at $900. What is the yield to maturity of this bond?
What is the Acme Company's weighted average cost of capital if its cost of before-tax debt is 8% (20% of overall capital structure), its cost of preferred stock is 9.5%.
Consider a 8 percent coupon bond with nine years to maturity and a current price of $1,036.80. Suppose the yield on the bond suddenly increases by 2 percent. Use duration to estimate the new price of the bond. Calculate the new bond price.
Skillet Industries has a debt–equity ratio of 1.8. Its WACC is 9.1 percent, and its cost of debt is 7.1 percent. The corporate tax rate is 35 percent. What is the company’s cost of equity capital? What would the cost of equity be if the debt–equity r..
Find the market value of Lawrence's shares when dividends are expected to grow at 25% annually for 3 years, followed by a 5% constant annual growth rate in year
Hunter Boyd who just turned 32, expects to retire in 35 years when he turns 67. Mr. Boyd just passed Idaho’s Licensed Plumbers LP exam, allowing him to bid on plumbing projects having a total cost less than $25,000. Assuming that inflation is expecte..
If a firm buys on trade credit terms of 3/10, net 50 and decides to forgo the trade credit discount and pay on the net day, what is annualized cost of forgoing the discount (assume a 360-day year)? The annualized cost of the trade credit terms of 3/1..
Suppose that a firm has common stock that currently trades for $54.65 in the marketplace, paid an annual dividend last year of $3.25, and has flotation costs of 13.13%. If the firm's return-on-equity is 12% what is the firm's after-flotation cost of ..
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