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ABC Company has $10,000,000 par value bonds outstanding with 15 years left to maturity and a coupon rate of 6% (paid annually) while similar bonds are yielding 5.35%. ABC has 1,000,000 shares of common stock outstanding with a book value of $10 per share and a market value of $11.50. The Beta of ABC is 1.35 and the market risk premium is 6% while the expected return on the market is 9%. ABC has a tax rate of 40%. What is the NPV of the project? Will you recommend the purchase of the equipment? Explain your recommendation.
A small college has space for a maximum of 1,000 students. The college can identify 500 of its students who are willing to pay $20,000 per year and 500 students who are willing to pay $10,000 per year. To continue operating, the college must receive ..
Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 88,000 2 101,000 3 115,000 4 110,000 5 91,000 Production of the implants will require $1,670,000 in net working capital to st..
Pelzer Printing Inc. has bonds outstanding with 24 years left to maturity. The bonds have an 12% annual coupon rate and were issued 1 year ago at their par value of $1,000. For the coming year, what is the expected current yield?
What is the value in dollars of a derivative that pays off £10,000 in 1 year provided that the dollar/sterling exchange rate is greater than 1.5000 at that time?
What do you conclude about the relationship between time to maturity and the sensitivity of bond prices to interest rates?
Dustin is considering an investment that will pay $3200 a year for 8 years, starting 1 year from today (which is normal). How much should Dustin pay for this investment today if he wishes to earn a 6 percent annual rate of return?
At the beginning of the day Ms. Theresa invested $33,400 of her own wealth for buying shares of XYZ Inc, when the price of XYZ share was $24 per share. Suppose that, at the end of the day the price of XYZ share is $27 per share. What is the daily ret..
An insured municipal bond bears a lower cost to the borrower than does an equivalent uninsured bond because:
A utilisation of cash flow analysis is setting the bid price on the project. To calculate the bid price we set the project NPW equal zero and find a required price. Thus the bid price represents a financial break even level for the project. What bid..
When preparing capital budgeting analysis for a new project, Chris Johnson, a chief financial officer at BT Industries, faced a dilemma.
A call option on 100 shares of Generous Dynamics stock has an exercise price $125.0 per share. GD declares a stock dividend of 18.0 percent. What happens to the exercise price and the number of shares underlying the option?
Pine Tree Farms Corporation (PTFC) has a target capital structure of 30% debt, 10% preferred stock, and 60% common equity. Currently PTFC has a capital structure of 75% debt, 10% preferred stock, and 15% common stock.
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