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You own some shares of Microsoft worth $1,000. Beta of Microsoft is 2. Microsoft currently has no debt. Microsoft decides to issue debt and buy back some of its stock in open market. Specifically, Microsoft decides to buy back 20% of its stock using ALL the proceeds of a new issue of risk-free bonds. Corporate tax rate is zero. You decide to not sell any part of your shares.
What is the value of your shares after the buyback is completed.
You are looking at two savings accounts offered by different banks. One pays 5.25% APR, with daily compounding. The other pays 5.3% APR with semiannual compounding. Which account should you use to get more from your deposit?
Knight Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take three rights to buy a new share in the offering at a subscription price of $61. The next morning, you notice that the stock sells for $70 per sh..
Consider the production cost information for Mama Italiano Sauce given below: Mama Italiano Sauce Production Cost Budget April 2008 Production - Jars of sauce 20,000 Ingredient cost (variable) $16,000 Labor cost (variable) 9,000 Rent (fixed). The com..
What additional assumptions (to the main three) are important when applying the CAPM and what are the underlying strengths and weaknesses of this application? Discuss the reliability of the model and give examples in your explanation.
Northern Wood Products is an all-equity firm with 16,000 shares of stock outstanding and a total market value of $352,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $26,000 if the econo..
Discuss differences between cash flow and accounting income and why it is important to use cash flow in making capital budgeting decisions. How do companies generate ideas for capital projects? Give some examples of capital projects that companies in..
Explains what happens to a firm’s break-even point if it is able to lower its fixed operating costs but keeps its variable operating costs per unit constant.
How do the concepts of credit and interest, as incorporated into banking and money lending, help to stimulate economic growth? Give one example of how you think it may have stimulated growth in medieval times, and one example of how it works today.
Assume that the Federal Reserve injects $80 billion into the financial system. If the money supply increases by a maximum of $500 billion, what must the reserve requirement be?
Which of the following is NOT given as a reason for merger activity in the U.S.?
If you purchase a zero coupon bond today for $225 and it matures at $1,000 in 11 years, what rate of return will you earn on that bond?
The Dunning Co. needs to raise $66.4 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $64 per share and the company’s underwriters ..
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