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A corporation is trying to decide whether to buy the patent for a product designed by another company. The decision to buy will require an investment of $8 million, and the demand for the product is not known. If demand is light, the company expects a return of $1.3 million each year for three years. If the demand is moderate, the return will be $2.5 million each year for four years, and a high demand will mean a return of $4 million each year for four years. It is estimated that the probability of a high demand is 0.4 and the probability of a light demand is 0.2. The firm's interest rate (risk free) is 12%. Calculate the expected present worth of the investment. On this basis, should the company make the investment? (All figures represent after-tax values.)
Coogly has outstanding preferred stock That pays a dividend of $4 per share and sells for $82 per share, with a floatation cost of $6 per share. What is the component cost for Coogly's preferred stock? What are the advantages and disadvantages of usi..
Over the last decade, in the U.S., there were more preferred stock issues than common stock issues. The yield curve almost always slopes upward. An asset that last year had a Sharpe ratio = 0 would have had acceptable performance. An equity that last..
Stock X was just added to the Dow 30 Index. Prior to the addition, the correlation between the daily returns of X and the other 29 stocks in the Index was +0.40. How do you expect the daily return correlation to change after X is added to the Dow 30 ..
Delta, Inc., has a times interest earned ratio of 3.0. Based on this ratio, a creditor knows that Delta's EBIT must decline by more than ______ percent before Delta will be unable to cover its interest expense. Show Work.
Describe the type of returns one could one expect with a callable bond trading at a premium price and provide your rationale. Explain the significance of the designation "premium price." Discuss why or why not a callable bond trading at a premium pri..
Harvey Supplies Inc. has a current ratio of 4.56, a quick ratio of 1.95, and an inventory turnover ratio of 11.21. Harvey's total assets are $8,407,769 million and its debt ratio is 0.47. The firm has no long-term debt. What is Harvey's sales figur..
Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 40%. What is the firm’s ..
What is the ex-dividend price of a share in a perfect capital market - What net tax savings per share for an investor would result from this decision?
Gold Mining, Inc. is using the profitability index (PI) when evaluating projects. Gold Mining’s cost of capital is 8.75 percent. What is the PI of a project if the initial costs are $2,371,020 and the project life is estimated as 9 years? The project..
Integrated Waveguide Technologies, Inc. (IWT) is a 6 year old company founded by Hunt Jackson and David Smithfield to exploit met material plasmatic technology to develop and manufacture miniature microwave frequency directional transmitters and rece..
Kurnick Co. expects that the pound will depreciate from $1.70 to $1.68 in one year. It has no money to invest, but it could borrow money to invest. It has been approved by a bank to borrow either 1 million dollars or 1 million pounds for one year. De..
Suppose stock in Boone Corporation has a beta of .90. The market rate premium is 7 percent, and the risk-free is 8 percent. Boone's las dividend was $1.80 per share, and the dividend is expected to grow at 7 percent indefinitely. The stock currently ..
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