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Southwest Physicians, a medical group practice in Oklahoma City, is just being formed. It will need $2 million of total assets to generate $3 million in revenues. Furthermore, the group expects to have a total margin of 5 percent. The group is considering two financing alternatives. First, it can use all-equity financing by requiring each physician to contribute his or her pro rata share. Second, the practice can finance up to 50 percent of its assets with a bank loan. Assuming that the debt alternative has no impact on the expected total margin, what is the difference between the expected return on equity (ROE) if the group finances with 50 percent debt versus the expected ROE if it finances entirely with equity capital?
Describe a real company’s dividend policy and try to explain why it is preferable to other dividend policy. Please include reference links on where you found your information.
Jute Corporation's common stock has a beta of 1.1. The risk free rate is 3% and the market return is 7%. The company announces that starting next year it will pay a dividend of $13 forever. What is the estimated share price now? Compared to Google___..
BVA Inc. has two bond issues outstanding; each with a par value of $1,000 information about each is listed below. Suppose market interest rates rise 1 percentage point across the yield curve. What will be the change in price for each of the bonds? Do..
App Store Co. issued 16-year bonds one year ago at a coupon rate of 7.7 percent. The bonds make semi-annual payments. If the YTM on these bonds is 5.4 percent, what is the current bond price? (Do not round intermediate calculations. Round your answer..
An all equity firm generates cash flows (CFFA) of $100 million every year in perpetuity. Based on the risk of the cash flows, a discount rate of 20% is appropriate for the firm. The firm is considering a project that will require an investment of $75..
You have been living in the house you bought 6 years ago for $250,000. At that time, you took out a loan for 80% of the house at a fixed rate 25-year loan at an annual stated rate of 9.5%. You have just paid off the 72th monthly payment. Interest rat..
You and your spouse are in good health and have reasonably secure careers. Each of you makes about $40,000 annually. You own a home with an $80,000 mortgage, and you owe $15,000 on car loans, $5,000 on personal debts, and $4,000 on credit card loans...
You have decided to invest 30 percent in X; 30 percent in Y; and 40 percent in Z. The probability of the state of the economy is Boom 25%; Normal 60%; and, Bust 15%. What is the portfolio expected return? If the expected T-bill rate is 1.5 percent, w..
Your stock investments return 8%, 12%, and -4% in consecutive years. What is the geometric return? What is the sample standard deviation of the above returns?
Your grandfather invested $1,000 in a stock 47 years ago. Currently the value of his account is $318,000. What is his geometric return over this period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal plac..
A corporate bond is quoted at a price of 110.5 (% of face value) and carries a 6.0 percent coupon. The bond pays interest semi annually. What is the current yield on one of these bonds?
Stock A has a standard deviation equal to 20% and an expected return of 11%. Stock B has a standard deviation equal to 25% and an expected return of 14%. The correlation coefficient of the returns on Stock A and Stock B is 50%. How much must you inv..
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