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An entrepreneur has a project that requires a $10,000 initial investment. The project is risky and will produce revenue of $16,000 with probability 0.75 and revenue of $12,000 with probability 0.25.
He plans to pay 20% down payments and borrow additional 80% from Wells Fargo Bank with a 30 year, 4.25% fixed-rate mortgage loan. He is expected to pay an equl MONTHLY payment starting from Decembe
The market interest rate is 5.0% and the short rebate rate is 3.0%. What is your additional gain or loss due to leasing the asset?
Funds raised from the bonds will be used to repurchase outstanding shares. The effective tax rate is 25% at the corporate level. According to the MM theory, what is the initial change in equity valu
Using the percentage of total inventory costs, if these were her total inventory costs, what items should be classified as A items? What items are C items?
Madison Corporation has a $1,000 par value bond outstanding which pays an annual interest of $70 dollars. The bond matures in 20 years. If the present yield to maturity for this bond is 9%, calculat
Explain what is an opportunity cost? How is this concept used in TVM analysis? Clearly state whether or not you think the opportunity rate a single number that is used in all situations.
A Call Option on the stock of XYZ Company has a market price of $9.00. The price of the underlying stock is $36.00, and the strike price of the option is $30.00 per share. What is the Exercise Value
Suppose A issues floating-rate debt and B issues fixed-rate debt, after which they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal
The Exercise (Strike) Price on ABC Company's Option is $21.00, its Exercise Value is $23.00, and its Time Value is $7.00. What is the Market Value of the Option? What is the price of the underlying
ABC Company has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 16 percent? Assume annual payments.
Commercial banks lend unsecured short-term funds in the following three basic ways:
Wallace Industries paid a dividend of $1.85 on its common stock yesterday. The dividends of Wallace Industries are expected to grow at 8% per year indefinitely. If the risk free rate is 4% and inves
Soenen finances its net working capital with a bank loan at an 8% annual interest rate, and it uses a 365-day year. If these changes had been made, by how much would the firm's pre-tax income have i
What is the implied interest rate yield on a Treasury Bond ($100,000) futures contract that settled at 100'24 (or 100 24/32)? If interest rates increased by 0.75%, what would be the contract's new v
Hartzell Inc. had the following data for 2011, in millions: Net income = $600; after-tax operating income [EBIT(1 - T)] = $700; and Total assets = $2,000. Information for 2012 is as follows: Net inc
"The current price of a 10-year, $1,000 par value bond is $1,158.91. Interest on this bond is paid every six months, and the simple annual yield is 14 percent. Given these facts, what is the annual
Today, the one-year U.S. interest rate is 3%, while the one-year interest rate in Mexico is 8%. The spot rate of the Mexico peso (MXP) is $.08 The one-year forward rate of the MXP exhibits a 11% dis
Assume the following information: Current spot rate of Australian dollar = $.90 Forecasted spot rate of Australian dollar 1 year from now = $.88 1-year forward rate of Australian dollar = $.91 Annua
During 2005, kewell's days sales oustanding was 40 days. The industry average DSO was 30 days. Assume instead that in 2005, Jewell had been able to achieve the industry average DSO without reducing
Derive the probability distribution of the one-year HPR on a 3-year U.S. Treasury bond with an 8% coupon (paid semiannually) if it is currently selling at par and the probability distribution of its
Calculate the expected NPV for both projects. Can the question be resolved with this information alone? Calculate the variance and standard deviation of the NPVs for both projects. Which project appea