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Explain why the no arbitrage condition must exist for a call. In other words, explain what it means for a call to be over-priced or under-priced relative to the BOPM.
Portfolio Beta You own $1,300 of City Steel stock that has a beta of 1.56. You also own $5,600 of Rent-N-Co (beta = 1.86) and $4,600 of Lincoln Corporation (beta = .96). What is the beta of your portfolio (closest to)?
Dusit is financed 25% by debt yielding 8.4%. Investors require a return of 15.4% on Dusit’s equity. What is the company’s weighted-average cost of capital if the corporate tax rate is 35%? What would be the company’s cost of capital if it were exempt..
Sports Corp has 11.8 million shares of common stock outstanding, 6.8 million shares of preferred stock outstanding, and 2.8 million bonds. If the common shares are selling for $26.8 per share, the preferred share are selling for $14.3 per share, and ..
The tax treatment regarding the sale of existing assets that are sold for their book value results in: a. recaptured depreciation taxed as ordinary income b. no tax benefit or liability c. an ordinary tax benefit d. a capital gain tax liability and r..
Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system.
Bobs stuff, INC has preferred stock with a stated dividend of $3.57, which is currently trading at 25.6 per share. Bob bleives he can sell shares at that cost, but with flotation costs at 7% of the selling price. What is Bobs cost of preferred stock?
The margin requirement on the S&P 500 futures contract is 8%, and the stock index is currently 1,400. Each contract has a multiplier of $250. How much margin must be put up for each contract sold?. What will be the investor's percentage return based ..
Suppose that two factors have been identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 3%, and IR 4.3%. what is your revised estimate of the expected rate of return on the st..
An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $6,400,000 and will be sold for $1,530,000 at the end of the project. what is the after tax salvage value of ..
A firm’s WACC is 13%, its required return on equity is 17%, and its after-tax cost of debt is 6%. What proportion of the firm’s capital structure is debt, and what proportion is equity? (Hint: what do the proportions of debt and equity add to?)
Claremore Candy Company (CCC) just bought a machine that is expected to generate $31001 in operating income before depreciation expenses each year. The machine, which has a depreciable basis of $83990, falls into the MACRS 3-year class. After-tax ope..
Caballos, Inc., has a debt to capital ratio of 41%, a beta of 1.97 and a pre-tax cost of debt of 5.8%. Estimate the Return on Capital.
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