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CAR Inc. will be liquidated in one year. The value of CAR’s assets is currently $650 million, and next year it will be either $825 million or $400 million. Before shareholders can be paid next year, CAR will have to repay $500 million of debt. (I.e. CAR has zero coupon debt outstanding with exactly one year to maturity and a total face value of $500 million.) The risk free rate is 4%.
a) What is the current value of CAR’s equity?
b) What is the current value of CAR’s debt?
Hooper Printing Inc. has bonds outstanding with 14 years left to maturity. The bonds have an 9% annual coupon rate and were issued 1 year ago at their par value $1000. However, due to changes in interest rates, the bond's market price has fallen $120..
Would high quality bonds higher or lower coupons everything else the same? Which one would be more sensitive to changes in the interest rates, high quality or low quality?
Paying off credit cards Simon recently received a credit card with an 13% nominal interest rate. With the card, he purchased an Apple iPhone 5 for $400. The minimum payment on the card is only $10 per month. If Simon makes the minimum monthly payment..
Review the financial statements of Merck and Novartis to learn additional information. The emphasis of this Case is to review the income statement, balance sheet and computation of ratios.
Prepare a report on evaluation of the models and concepts proposed outlining their limitations and merits.
Please explain the difference between the modified accrual method and the full accrual method? Under modified accrual accounting, the term expenditure is used instead of expense. Expenditures are generally recognized when the liability is incurred." ..
We are evaluating a project that costs $1,100,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 42,000 units per year. Calculate the best-case an..
Do US Treasury bills have lower interest rates than large-denomination negotiable bank CD? Why or why not, is the difference appropriate, and do you think that it correctly reflect the risk of the instrument with the "higher" interest rate.
Northwest Industries is considering a project with the following cash flows: Initial Outlay=$2,800,000 After-tax operating cash flows for years 1-4=$850,000 per year, Additional after-tax terminal cash flow at end of Year 4=$125,000 Compute the net p..
Equity capital can be raised through_____.
Describe the anti-takeover strategy employed by Genzyme during the Sanofi acquisition. Discuss why each may have been employed. In your opinion, did the Genzyme strategy work?
When calculating WACC and applying the results to both unlevered (no debt) and levered (debt) firms, the levered firm is shown to be more valuable. Two identical firms and the firm with debt is more highly valued. Does this make sense? Why or Why not..
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