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You purchased one of AAA Corp.’s 9%, 15-year convertible bonds at its $1,000 par value a year ago when the company’s common stock was selling for $25. Similar bonds without a conversion feature returned 10% at the time. The bond is convertible into stock at a price of $35. The stock is now selling for $40. Assume no dividends. a) You exercise the conversion feature today and immediately sold the stock you received. Calculate the total return on your investment. b) What would your return have been if you had invested $1,000 in AAA’s stock instead of the bond?
Find the periodic payment R required to amortize a loan of P dollars over t years with interest charged at the rate of r% year compounded m times a year.
We know the following about Alloy and Brant (A&B). Total assets are $220m, D is $140m, E is $60m, preferred stock of $20m, cash is $100m and the # of shares is 1m. We estimate that the market value of equity is 2 times the book value of it. Finally, ..
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.35, and the total portfolio is exactly as risky as the market, what must the beta be for the other stock in your portfolio?
What will the marginal cost of capital be immediately after that point? At what size capital structure will there be a change in the cost of debt
Discuss the various issues that must be considered in selecting an investment banker for an IPO. Which type of placement is usually preferred by the issuing firm? Why?
According to Vandalay’s capital budgeting plan, the maximum yearly amount it can afford to pay on a loan to finance the new factory upgrade is $90,000. The firm finds out that the lowest interest rate that it can obtain from the local banks is 6% per..
ABC Products Company has hired your team to assist them in achieving their optimal order size to enhance inventory management. As you know, there are two basic costs to inventory; handling and delivery as well as carrying costs (this includes storage..
1 the difference between the price and the par value of a zero-coupon bond represents .a taxes payable by the bond
Assume that the demand for chalk is = 8 -0.1, where P is the market price and Q is the total market output measured in thousands of boxes of chalk. Suppose that there are three firms in this industry, each of which has a constant variable cost of $2...
A Carlyle chemical is evaluating a new chemical compound used in the manufacture of a wide range of consumer products. The firm is concerned that inflation in the cost of raw materials will have an adverse effect on the projects cash flow.
Your firm is considering a new product development. an outlay of $90,000 is required for equipment, and an additional net working capital of $5000 is required. the project is expected to have a 4 year life, and the equipment will be depreciated on a ..
Dan is considering the purchase of Super Technology, Inc. bonds that were issued 3 years ago. When the bonds were originally sold they had a 27-year maturity and a 6.27 percent coupon interest rate, paid annually. The bond is currently selling for $1..
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