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1. AGENCY PROBLEMS
Who owns a corporation? Describe the process whereby the owners control the firm’s management. Describe the main reason why an agency relationship exists in the corporate form of organization. In this context, describe the types of problems that can arise.
2. ENTERPRISE VALUE
A firm’s enterprise value is equal to the market value of its debt and equity, less the firm’s holdings of cash and cash equivalents. This figure is particularly of interest to potential purchasers of the firm. Why?
3. CURRENT RATIO
Explain what it means for a firm to have a current ratio of .50. Would the firm be better off with a current ratio of 1.50? What if it were 15.0? Explain your answers.
4. SALES FORECASTS
Why do you think most long term financial planning begins with sales forecasts? Stated differently, why are future sales the key input?
A borrower is considering the following loan package for a $400,000 home purchase: First mortgage: $300,000 for 30 years at 5% interest Second Mortgage: $100,000 for 5 years at 7% interest. What is the combined interest cost (effective cost) of this ..
Identify all the important stakeholders for the entity.
Dinklage Corp. has 7 million shares of common stock outstanding. The current share price is $73, and the book value per share is $8. The company also has two bond issues outstanding. What are the company's capital structure weights on a book value ba..
You sell a bond for $11M. This bond has a 20-year maturity, a face value of $10M, a beta of 0.10, and promises an annual coupon payment of 5 percent of the face value. Assume a risk-free rate of 4 percent and a market risk premium of 6 percent. What..
Sunburn Sunscreen has a zero coupon bond issue outstanding with a $25,000 face value that matures in one year. The current market value of the firm's assets is $27,200. The standard deviation of the return on the firm's assts is 35% per year, and the..
You buy a share of stock, write a one-year call option with a strike price X = $28, and buy a one-year put option with a strike price X = $28. Your net initial cost to establish the entire portfolio is $26.70. What must be the risk-free interest rate..
The economy is slowing down, not growing and unemployment is going up. If you are on the Federal Reserve Board of Governors what type of policy would you pursue? Please be specific on the tools of monetary policy.
The annual continuously compounded 6-month and 1-year zero rates are 3% and 4%, respectively. A 1.5-year bond that pays coupons of $2 every six months currently sells for $98.52. What is the 1.5-year zero rate with continuous compounding? Show the ca..
How much would a zero coupon bond sell for today that pays $1,000 in 10 years, assuming an interest rate of 3% that is compounded monthly? Find the Future Value 86 months from now of an investment of $11,342 made 6 months from now if the interest rat..
A bond issued by the Harris Corporation has a coupon rate of 9 ¼ percent. It matures in 2035. If the price in the market is selling for $1,055.00, should you buy this bond? What rate of return is the market offering?
Linda O’Shay deposited $30,000 in a savings account as a perpetual trust. She believes the account will earn 7% annual interest during the first 10 years and 5% thereafter. The trust is to provide a uniform end-of-year scholarship at the university. ..
The original Barbie doll was introduced in 1972 and sold for approximately $3.00. In year 2015, a mint-condition doll in its original box would be listed on EBay at approximately $700.00. What average annual rate of return would the seller realize if..
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