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1. What does a negative covariance between two assets imply?
A. That the returns of the two different assets tend to move in different directions.
B. That the two assets are mirror images of each other.
C. That the two assets tend to be in different industries.
D. That the probabilities of different economic scenarios tend to be equal to each other.
2. Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 percent. The firm has 6,000 shares of 7 percent preferred stock outstanding at a price of $48 a share. The preferred stock has a par value of $100. The company also has 350 corporate bonds, each with $1000 par value, and the bond currently sells for 102 percent of face. The yield-to-maturity on the debt is 8.49 percent.
What is the capital structure weight of the firm's debt?
A. 36.75%
B. 28.33%
C. 18.25%
D. 24.46%
Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon rate of 5%, paid annually. Today, the debt is selling at $1,120. If the firm’s tax bracket is 30%, what is its after-tax cost of debt? (Do not round intermediate calculat..
A portfolio consists of 4 securities. Security 1: Beta= 1.2 Standard deviation of random error term=5% Proportion=.10. Security 2: Beta=1.03 Standard deviation of random error term= 7% Proportion = .10 The standard deviation of the market index is 15..
Waldo expects to receive the following payments: year 1 = $50,000; year 2 = $28,000; year 3 = $12,000. All of this money will be saved for his retirement. If he can earn an average annual return of 10.5 percent, how much will he have in his account 2..
A firm has sales of $1,110, net income of $236, net fixed assets of $458, and current assets of $322. The firm has $95 in inventory. What is the common-size statement value of inventory?
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell currently has a cost of equity of 10%; 25% of its financing is in the form of 6% debt, and the rest is in common equity. Its federal-plus-state tax rate is 38%. After this, ..
Financial holding companies are: Companies that hold a variety of different types of financial institutions. Are currently being regulated by the U.S. Office of the Comptroller of the Currency. Cannot hold both depository and non-depository financial..
What are the primary sources of risk that depository institution managers face? Describe how each risk type potentially affects performance. Provide one financial ratio to measure each type of risk and explain how to interpret high versus low values.
A project that provides annual cash flows of $2,200 for nine years costs $9,100 today. At a required return of 9 percent, what is the NPV of the project? At a required return of 25 percent, what is the NPV of the project? At what discount rate would ..
A project has base-case earnings before interest and taxes of $11,444, fixed costs of $38,000, a selling price of $26 a unit, and a sales quantity of 14,200 units. All estimates are accurate within a plus/minus range of2 percent. Depreciation is $11,..
What is the value of a 1,000 par value 8% annual coupon bond with 15 years to maturity if the market required rate of return is 10%?
Assume that the euro is trading at a spot price of USD/EUR 1.49. Further assume that the premium of an American call (put) option with an exercise price of $1.50 is 1.55 (3.70) cents. Calculate the intrinsic value and the time value of the call and p..
Some companies like Nike and Southwest Airlines openly try to recruit couples. Do you think is a good idea? How would you feel working in a department with couple?
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