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Company Z raises 30 on 40 with VC taking convertible preferred with a conversion price equal to the current share price implied by post money valuation. The conversion rate is 1 PS for 1 CS. Founders originally had 10M shares. The founders believe that either the company grows to $600M if their product work as expected or $300M if it is functional but not spectacular. a) What is the implied value per share based on valuation by VC? b) What is proportion of ownership of VC? Of founders? c) What is the value at exit that would make the VC want to convert into common stock?
The economy is slowing down, not growing and unemployment is going up. If you are on the Federal Reserve Board of Governors what type of policy would you pursue? Please be specific on the tools of monetary policy.
First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually. If you made a $57,000 deposit in each bank, how much more money would you earn from your Second City..
Some analysts consider a current (or working capital) ratio of less than one to be a positive sign of liquidity, despite conventionally indicating illiquidity. Discuss why some hold this position considering what you know about the net cash conversio..
Changes in Growth and Stock Valuation Consider a firm that had been priced using a 6 percent growth rate and a 9 percent required rate. The firm recently paid a $.70 dividend. The firm has just announced that because of a new joint venture, it will l..
Suppose “s” (the fraction of your wealth put into stocks) is 0.8 and that stocks have a return of 25 percent. If the return on bonds is 3 percent, what is the return on your wealth?
Data Inc. recently hired you as a consultant to evaluate its cost of capital. Using the following information, determine Data Inc’s cost of capital. ? New debt can be raised at a rate equal to the yield to maturity (YTM) on the company’s outstanding ..
The current stock price for a company is $35 per share, and there are 2 million shares outstanding. This firm also has 90,000 bonds outstanding, which pay interest semiannually. If these bonds have a coupon interest rate of 8%, 7 years to maturity, a..
Grace Fine Dining Trust is financed 100 percent with equity and intends to retain this way. Grace's common stock beta is 1.20, the expected market return (average market return) is 12 percent, and the risk-free rate is 5 percent. What are the cost of..
Stock XYZ has an expected return of 12% and B = 1. Stock ABC is expected to return 13% with a beta of 1.5%. The market's expected return is 11% and r1 = 5%. According to the CAPM,which stock is a better buy? What is the alpha of each stock? What is t..
Your firm recently paid a dividend of $4 to common stockholders. Dividends are expected to grow at 8% per year for the foreseeable future. The current stock price is $54. What is the firm’s cost of capital if their capital structure consists of 60% e..
ABC Corp. has a floating rate debt for which the firm pays an interest rate of LIBOR + 1%. The firm enters into an interest rate swap on the same notional principal as the floating rate debt. In the swap, the firm receives LIBOR and pays 6.5%. What i..
Suppose the spot and three-month forward rates for the yen are ¥79.70 and ¥79.04, respectively. What would you estimate is the difference between the annual inflation rates of the United States and Japan?
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