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A firm is considering the refunding of a $60 million, 16% coupon, 30- year bond issue that was sold 5 years ago; there were $3 million in flotation costs. The firm's investment bank has indicated that the firm could sell a new 25-year issue at 13%. A call premium of 16% would be required to retire the old bonds and flotation costs on the new issue would be $3 million. The new bonds would be issued 1 month before the old bonds were called with the proceeds being invested in short-term government securities earning 10% annually during the interim period. The firm's tax rate is 40%. Perform a refunding analysis and find the NPV of the refunding. Should the firm refund? Why or why not?
A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr. Jeter, the vice-president of finance, has given you the following information and has asked you to compute the weighted average..
Assume you buy a 5-year 10% annual bond which is priced to yield 14%. Face value is 1000. Determine the current price of the bond. Determine the bond’s Macaulay Duration (D). Determine the bond’s Modified Duration (Dmod). Interpret this value.
Consider an asset with a beta of 1.2, a risk-free rate of 5%, and a market return of 13%. What is the reward-to-risk ratio in equilibrium? What is the expected return on the asset?
Ryan Borrowed $15,000 now with a 7% interest rate compounded annually. He needs to pay them back over 7 years starting from the end of the first year, what will be Ryan’s annuity assuming that he will miss the 4th payment
Calculate all the ratios for the company for the past three years and compare them to the appropriate industry benchmarks.
Theo is a consultant who earns 72,000$ annually. His wife, Julia is a homemaker and theey have one child, Ben. Theo is covered by 200,000$ life insurance policy. The couple assumes an annual inflation rate of 3%. How would you design a finance plan f..
You are the portfolio manager for a mutual fund. Your fund has an expected return of 15% with a standard deviation of 24% and the T-bill rate is 3%. Calculate the weight w. What is the standard deviation of the rate of return on the new portfolio?
Captain Cooks has 5 million bonds outstanding that are selling at par ($100.00) and 5 million shares of common equity outstanding with a share price of $100, with no preferred stock. What is its cost of common equity and its WACC?
The price of a 10-year $100 par zero coupon inflation-indexed bond is $88.91. A real-estate property is expected to yield 2% per quarter (nominal) with a SD of the (effective) quarterly rate of 10%. Compute the annual rate on the real bond.
General price inflation is estimated to be 3% for the next 5 years, 5% the 5 years after that, and 8% the following 5 years. If you invest $10,000 at 10% for those 15 years, what is the future worth of your investment in actual dollars at that time a..
Julie Magardino is shopping for a mortgage. She needs to borrow $350,000. Bank of America’s rate for a 30-year fixed rate loan is 4.50% while Wells Fargo is offering her a rate of 4.67%. What will her respective monthly payments be with both lenders?..
Why a bank lending office would be interested in the cash flow statement of a company that is applying for a loan?
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