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EBIT was $55 million in 2016, and is expected to remain constant for 2017. The firm is all equity financed, and there are 15 million shares outstanding. The corporate tax rate is 37.5%, the risk-free rate is 3.5% and the market risk premium is 4%. The firm’s beta was estimated at 1.25 by the investment bankers who have also supplied the following estimates of debt costs for different capital structures: At 20 percent debt, the cost of debt would be 6.3%; at 30 percent debt, the cost would be 7.5%; at 40 percent debt, the cost would be 8.7%; at 50 percent debt, the cost would be 10%
For each capital structure under consideration for the pizzeria chain (see given information above), find the levered beta, the cost of equity and the WACC.
Using the WACC values found in g, find the corporate value. At which level of debt would the firm value be maximized?
What are the key activity areas for securities firms? How does each activity area assist in the generation of profits and what are the major risks for each area?
Determine whether the forward rate is priced appropriately. If it is not priced appropriately, determine the profit you could generate for Blades by withdrawing $100,000 from Blades' checking account and engaging in covered interest arbitrage
Future Value of Multiple Annuities Assume that you contribute $110 per month to a retirement plan for 20 years. Then you are able to increase the contribution to $210 per month for another 20 years. Given a 6.5 percent interest rate, what is the valu..
If you invest $10,000 at 10% interest (compounded annually), how much will you have in 10 years? Round your answer to the nearest dollar.
What are advantages and disadvantages of stock repurchases relative to traditional dividend payments and how does dividend payment affect stock price? any supporting evidence?
L.A. Clothing has expected earnings before interest and taxes of $2,100, an unlevered cost of capital of 13 percent and a tax rate of 35 percent. The company also has $2,700 of debt that carries a 6 percent coupon. The debt is selling at par value. W..
Suppose you invest $4,500 in Stock A and $5,500 in Stock B. The variance of Stock A is 10%, the variance of Stock B is 20%, and the covariance between the two stocks is 1.87%. What is the standard deviation of your portfolio (in percent)?
A put option is purchased for a premium of $200 with an exercise price of $38 per share and a current market price on the stock of $41 per share. What would be the return if the market price declines to $35 per share and the stock is purchased and th..
You are considering a project with an initial cash outlay of $80,000 and expected cash flows of $20,000 at the end of each year for six years. The discount rate for this project is 10 percent. What are the project’s payback and discounted payback per..
Bob has $200,000 invested in a 2-stock portfolio. $120,000 is invested in Stock A and the remainder is invested in Stock B. Stock A's beta is 0.75 and B’s beta is 1.25. What is the portfolio's beta?
Test the null hypothesis that the mean of the log returns of each stock is zero. - Transform the simple returns to log returns.
A trader buys 100 shares of a stock on margin. The price of the stock is $30. The initial margin is 60% and the maintenance margin is 40%. How much money does the trader have to provide initially? For what share price is there a margin call.
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