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Emily Scott, head of a small business consulting firm, must decide how many M.B.A.s to hire as full-time consultants for the next year. (Emily has decided that she will not bother with any part-time employers.) Emily knows from experience that the probability distribution on the number of consulting jobs her firm will get each year is as follow: consulting jobs: 24, 27, 30, 33, Probability: 0.3, 0.2, 0.4, 0.1. Emily also knows that each M.B.A. hired will be able to handle exactly three consulting jobs per year. The salary of each M.B.A. is $60,000. Each consulting job is worth $30,000 to Emily's firm. Each consulting job that the firm is awarded but cannot complete costs the firm $10,000 in future business lost. (a) How many M.B.A.s should Emily hire? (b) What is the expected value of perfect information to Emily?
The optimal capital structure simultaneously maximizes stock price and minimizes the WACC. The optimal capital structure minimizes the cost of equity, which is a necessary condition for maximizing the stock price. The optimal capital structure simult..
A 6.15 percent coupon bond with fifteen years left to maturity is priced to offer a 7.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollar..
Compute the APV, WACC, and a WACC-based value if the firm borrows $50 to finance it. Repeat if the firm borrows $100.
You own a call option on Intuit stock with a strike price of $40. The option will expire in exactly three months’ time. a. If the stock is trading at $55 in three months, what will be the payoff of the call? Show all work. b. If the stock is trading ..
The Audit Committee is responsible for obtaining the appropriate input from management and considers the type and scope of work to be performed by the auditor and the audit fees associated with the audit.
James Fromholtz is considering whether to invest in a newly formed investment fund. The fund’s investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the fund’..
You want to start a bakery business. For this, you will need a capital of $ 75,000 to start operating. If you have to operate within 4 years. That sum total should now invest 12% quarterly composite, the amount needed to keep and operate your busines..
In a typical month, the Hampton Corporation receives 80 checks totaling $139000. These are delayed four days on average. What is the average daily float? Assume 30 days in a month.
We know the following about Bob & Co. Total assets are $1000m, E is $700m, cash is $500m and the # of shares is 1m. We estimate that the market value of equity is 2 times the book value of it. Finally, a fire sale of the firm would bring 70% of the v..
What is a firm's WACC if the stock has a beta of 1.45, Treasury bills yield 5%, and the market portfolio offers an expected return of 14%? In addition to equity, the firm finances 30% of its assets with debt that has a yield to maturity of 9%. Assume..
"The North Koreans are a threat to use nuclear weapons against the United States despite the overwhelming superiority of the American armed forces because they are crazy. There's no telling what they will do!" The above statement is suggesting that N..
Step I: Assume you are thinking about starting a business and would like to forecast your cash needs for the next six months. You expect sales to be approximately $30,000 per month for the first 12 months and your purchases to support sales will be a..
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