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Last year Rosenberg Corp. had $195,000 of assets, $18,775 of net income, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt ratio to 48%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE?
The stock of Cacique Corp., is expected to have earnings per share (EPS) next year of $6 per share. The required return for its stock is 15%.
Allen Air Lines is now in the terminal year of a project. The equipment originally cost $20 million, of which 80% has been depreciated. Carter can sell the used equipment today to another airline for $5 million, and its tax rate is 40%. What is th..
You were hired to advise the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose?
Cart sales are expected to be $1,800 a year for three years. After the three years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart.
The bonds have an 3.4% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?
The expected rate of return on the market portfolio is 8.50% and the risk-free rate of return is 2.50%. The standard deviation of the market portfolio is 24%. What is the representative investor's average degree of risk aversion?
What does a flexible budget performance report do that a simple comparison of budgeted to actual results does not do? What should be the consequences of a department or division that exceeds the spending budget for their product line?
Three years ago, you entered into a five-year interest rate swap agreement by agreeing to pay a fixed rate of 7 percent in exchange for six-month LIBOR. If your counterparty were to default today when the fixed rate on a new two-year swap is 6.5 ..
A T-bill with face value $10,000 and 80 days to maturity is selling at a bank discount ask yield of 2.7%.
Today you begin your retirement. 30 years ago you deposited $50,000 into an investment account that, since then, has always paid a 6 APR compounded yearly.
Eleanor Spryzak has endowed her alma mater with a scholarship that is designed to pay out a sum of money to a worthy student every year forever.
Consider an American bond with an effective duration (which is pretty much the same as modified duration, but more precise) of 6.76 years having a yield to maturity of 7% and interest rates are expected to rise by 50 basis points.
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