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1. A property developer is planning to build a new pay car park. The project will cost $20,500 and generate net cash inflows of $5,000 each year for five years. The IRR of this project is approximately
2.A firm is considering investment in a capital project with a project beta of 1.5. The expected return on the market portfolio is 15% and the risk-free rate is 6%. The firm's overall cost of capital is 18%. The discount rate that should be used in the net present value calculation to compensate for risk is
3. Miller Ltd is considering changing its capital structure from 100% equity to 80% equity (i.e. 20% debt relative to total assets) by repurchasing and cancelling shares. The number of shares outstanding are currently 10,000, but will drop to 8,000 after the repurchase. Miller will fund the repurchase by borrowing funds at an 8% interest rate. Total assets are $200,000, EBIT is $25,000, and the company tax rate is 30%. What is the effect on earnings per share associated with the EBIT of $25,000 for the new alternative capital structure?
A piece of newly purchased industrial equipment costs $966,000 and is classified as seven-year property under MACRS. The MACRS depreciation schedule is shown in Table 10.7. Calculate the annual depreciation allowances and end-of-the-year book values ..
You opened a savings account at a bank and made an initial deposit. The account pays 8% interest compounded annually. You made no additional deposits and in exactly one year you close the account and take out off of the money. The balance at the time..
Tinker’s Bells has sales of $27 million, total assets of $19 million, and total debt of $6.4 million. If the profit margin is 8 percent, what is net income? What is ROA? What is ROE? SDJ, Inc., has net working capital of $1,350, current liabilities o..
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 3 percent, -10 percent, 26 percent, 13 percent, and 17 percent. What was the average real return on Crash-n-Burn’s stock? What was the average nominal ri..
A one-year call option on a stock with strike price of $45 cost $5 and a one-year put option on a stock with strike price of $35 cost $3. A trader shorts two put options and shorts one call option. What is the breakeven stock price, below which the t..
Balthazar's savings bank has assets of 2 million invested in 20 year, 10% coupon Treasury bonds selling at par with duration 7.70 years. Liabilities of 1.8 million are financed with a two year, 8% coupon selling at par. Calculate the leverage adjuste..
You have a savings bond that pays $10,000 in 10 years. What could you sell it for today if interest rates are 5% APR compounded semi-annually. You could alternatively invest these proceeds at 4.95% APR compounded continuously.
Airspeed Aeronautics Corp. (“AAC”) manufactures fuel tanks for helicopters. The company is evaluating the expansion of its manufacturing plant to enable it to take on a new customer segment for the next 5 years. What is the upfront total after-tax ca..
What is the future value of a five-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?
The values of outstanding bonds change whenever the going rate of interest changes. in general, short-term interest rates are more volatile than long-term interest rates. therefore, short-term bond prices are more sensitive to interest ratw changes t..
1) Illustrate how Company A benefits from the use of interest rate swap. 2) Summarize the risks taken by the swap bank in the interest swap with Company B. 3) Is it feasible for the swap bank to customize an interest rate swap that provide a cost sav..
Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?
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