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Consider an economy with a large number of potential online game providers. The provider lacks the funds to start their projects. There is an equal number of investors who have the funds but no desire to create online games. Each investor has 50 goods to invest. Each online game requires 200 goods to create. Assume that 25 percent of the online game projects fail and return zero goods to the investor. The monitoring cost is two goods per failed project. Assume that bank operates costlessly in this economy. Also assume there are no barriers to entry in the banking industry.
a. Compute the expected return for each game project for the bank
b. What return will the bank offer a depositor?
Oz Corp. is now in the final year of a project. The equipment originally cost $9700, and the asset has been 60% depreciated. Oz can sell the used equipment today for $1500, and its tax rate is 35%. The equipment's after-tax net salvage value is $____..
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Shi Importers' balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi's tax rate is 40%, rd = 7%, rps = 7.9%, and rs = 14%. If Shi has a target capital structure of 30% debt, 5% preferre..
In what ways is preferred stock similar to long-term debt? In what ways is it similar to common stock?- Explain why bondholders often prefer a sinking fund provision in a bond issue.
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Suppose that you’re a FX trader for a bank in New York. You are faced with the following market rates: Is there a Covered Interest Arbitrage opportunity (CIA)? Explain why or why not.
Investment A costs $10,000 today and pays back $11,500 two years from now. Investment B costs $8000 today and pays back $4500 each year for two years. If an interest rate of 5% is used, which alternative is superior?
After watching the prices of drug stocks move up and down by large amounts, you seek an investment strategy that will succeed in spite of these unpredictable fluctuations. You notice that Merck stock is trading at 36.875. What option strategy could y..
Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires - that is, until he is 85. He wants his first retirement payment to have the same purchasing power at the time..
You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn has a reported equity beta of 1.5, a debt-to-equity ratio of .4, and a tax rate of 30 percent. Assume her FCF is expected to grow at ..
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