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If the economy booms, RTF, Inc. stock is expected to return 12 percent. If the economy goes into a recessionary period, then RTF is expected to only return 5 percent. The probability of a boom is 79 percent while the probability of a recession is 21 percent. What is the variance of the returns on RTF, Inc. stock?
RV Ventures has designed a new fuel efficient motor for their deluxe RV. Product development will continue for the next four years at an estimated cost of $250,000 annually, with the first payment to be made immediately. Assuming a forecast bias of +..
The eastern shuttle, INC is a regional airline providing shuttle service between New York and Washington DC. An analysis of the monthly demand for service has revealed the following demand relation:
Alabaster Incorporated wants to be levered at a debt to value ratio of .6. The cost of debt is 9%, the tax rate is 35%, and the cost of equity for an all equity firm is 12%. What will be Alabaster's cost of equity?
Binomial Tree Farm’s financing includes $6.7 million of bank loans. Its common equity is shown in Binomial’s Annual Report at $6.84 million. It has 500,000 shares of common stock outstanding, which trade on the Wichita Stock Exchange at $16.3 per sha..
Stock A has a beta of .2, and investors expect it to return 3%. Stock B has a beta of 1.8, and investors expect it to return 11%. Use the CAPM to calculate the market risk premium and the expected rate of return on the market. What is the market risk..
A couple bought a $300,000 home four years ago using a 15 year loan with an annual rate of 4.5% and a 20% down payment. What would be their monthly payments? Today they want to use a home equity line of credit to pay off some credit card debt. How mu..
An investor holds a porfolio of stocks and is considering investing in the DBB Company. The firm's prospects look neutral and you estimate the following probability distribution of possible returns. How much is the expected return for DBB? How much i..
You are 12 years into your fully-amortizing, 30-year, fixed-rate mortgage for $90,000. The loan has a 7-year reset provision. The initial interest rate on the loan is 6%. The reset rate is 8%. The loan required you to pay 3 discount points at origina..
A couple plans on refinancing their existing mortgage. They currently owe $150,000 (which represents 70% of the value of the house) with 15 years left on the loan and monthly payments of $1300. A new loan will be financed at the 15 year fixed rate fo..
Frantic Fast Foods had earnings after taxes of $420,000 in 2012 with 309,000 shares outstanding. On January 1, 2013, the firm issued 20,000 new shares. Because of the proceeds from these new shares and other operating improvements, earings after taxe..
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $12 million, of which 75% has been depreciated. The used equipment can be sold today for $4 million, and its tax rate is 40%. What is the equipment's ..
A project is expected to generate the following sequence of cash flows over the first five years of its life: Year 0 1 2 3 4 5 CF ($m) -65.00 8.00 8.00 9.00 9.50 10.00 Assume the appropriate discount rate for the project is 10%. Estimates the project..
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