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Consider a firm that can invest $250 right now, at t=0 in a project that will yield a single cash flow one period hence, at t=1. This $250 investment will be raised by issuing unsecured debt at t=0. This project will yield $500 with probability 0.8 and nothing with probability 0.2 at t=1. Immediately after the initial investment but before the end of the period (say t=1/2), the firm can purchase another asset, call it asset A, for $250 also. If purchased, A will yield a sure payoff of $300 at t=1. Those who lend the firm money at t=0 cannot observe at t=1/2 whether the firm had this investment opportunity. Everybody is risk neutral and the riskless rate is 12%. If you are the banker the firm has approached for a $250 loan at t=0, compute the price of your loan in two cases: (i) the firm can finance the acquisition of asset A with unsecured debt or not at all, and (ii) the firm can fiancé the acquisition of asset A with debt secured by the asset in question. Assume that in case (i), your bank (the initial lender) will have the same seniority as the new (unsecured) creditors who supply funds to purchase A. Your bank is competitive in loan pricing.
The D. J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new store. What is the effective annual interest rate of the costly trade credit?
If it's marginal tax rate was 30%, what were Timber's cash flows from operating activities for 2010?
When evaluating the expansion option, what value, if any, should the firm assign to this equipment as an initial cost of the project?
Determine the firm’s expected free cash flow to equity (FCFE) per share next year under these suppositions?
XYZ Ltd paid= $200,000 for feasibility study on project about a year ago. You are needed to compute: The amount of the loan repayments. The accounting rate of return (gross and net).
The robinson company had a cost of goods sold of 1,000,000 in 2011 and 1,200,000 in 2012. b. what would have been the inventories in 2012 if the 2011 turnover ratio had been maintained?
Your tax rate is 32 percent and you require a 13 percent return on your investment. What bid price per carton should you submit (Hint: the NPV)?
Computation of beta of a portfolio of a stock Which of the following statements is most correct
Cole Corporation entered into the transactions listed below during 2003. Prepare the appropriate journal entries for Cole Corporation.
The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $175,000. If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset?
Explain Selection of a machine through NPV and How much would Allen Company be willing to pay for machine B if the machine promises annual cash inflows
The bonds have an 3.4% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?
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