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Schalheim Sisters Inc. has always paid out all of its earnings as dividends; hence, the firm has no retained earnings.This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?
a. The market risk premium declines.
b. The flotation costs associated with issuing new common stock increase.
c. The company’s beta increases.
d. Expected inflation increases.
e. The flotation costs associated with issuing preferred stock increase.
Here are data on $1,000 par value bonds issued by Microsoft, Ford, and Xerox at the end of 2008. Assume you are thinking about buying these bonds as of January 2009. Calculate the values of the bonds if your required rates of return are as follows. E..
Valuation – options. The following information refers to a six-month call option on the stock of XYZ, Inc. What is the intrinsic value of the option? What is the option’s time premium at this price?
A 6.35 percent coupon bond with fifteen years left to maturity is priced to offer a 7.7 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollar..
The value of Broadway-Brooks Inc.'s operations is $900 million, based on the free cash flow valuation model. what is the best estimate of the stock's price per share?
Suppose the 1-year futures price on a stock-index portfolio is 1,624, the stock index currently is. Formulate a zero-net-investment arbitrage portfolio and show that you can lock in riskless profits equal to the futures mispricing.
List the thing that short term debt creditors and Equity investors are interested in seeing in a company's financial statement
Do empirical studies support or reject the notion that corporate insiders earn abnormal profits on their trades? What about outside investors who mimic their trades? What forms of market efficiency, if any, are supported by these studies?
What is the relationship between EVA and MVA? What impact do you think this performance by the bank is having on the value of its debt and equity securities?
A manager has decided to buy a widget. Two alternative financing methods are available: (A) use a financial lease or (B) purchase the widget using owner financing and borrowed capital. What is the present value of the lease payment (absolute value)? ..
Consider a firm with year 0 free cash flows (FCF) of $200 million. Assume that these free cash flows are a growing perpetuity, growing at a constant growth rate of 3% per year, forever. Assume that year 0 ended yesterday, and the year 1 free cash flo..
Consider a risky portfolio that offers a rate of return of 15% per year with a standard deviation of 20% per year. Suppose an investor is indifferent between investing in the risky portfolio and investing in a risk free asset earning 8% per year. Wha..
A negative-feedback amplifier has a closed-loop gain of Af = 100 and an open-loop gain of A = 5 × 104. - Determine the feedback transfer function β.
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