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A comparable firm (in a comparable business) has an equity beta of 2.5 and a debt/equity ratio of 2. The debt is almost risk free. Estimate the beta for your equity if projects have constant betas, but your firm will carry a debt/equity ratio of 1/2.
(Hint: To translate a debt-toequity ratio into a debt-to-asset ratio, make up an example.)
A bond with face and redemption amount of $3000 with annual coupons is selling at an effective annual yield rate equal to twice the coupon rate. The present value of the coupons is equal to the present value of the redemption amount. What is the sell..
Using the DCF method, calculate the cost of equity. Using the SML method, calculate the cost of equity.
The Sharpe Co. just paid a dividend of $1.70 per share of stock. Its target payout ratio is 40 percent. The company expects to have an earnings per share of $4.85 one year from now. a. If the adjustment rate is .6 as defined in the Lintner model, wha..
It is January 2nd. Senior management of Chester meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 50,000 shares of stock plus a new bond issue. The CFO happily notes this will r..
You are given the following information: at t = 0, the price of a 10?year zero coupon bond with FV = $10,000 is $7,000; the price of a 3?year zero coupon bond with FV = $5,000 is $4,300; f3,12 = 6%. A bank is offering the following product: What is t..
The company with the common equity accounts shown here has declared a 15 percent stock dividend when the market value of its stock is $41 per share. What would be the number of shares outstanding, after the distribution of the stock dividend? New sha..
Redneck Farm Equipment owes $48,329 in tax on a taxable income of $549,600. The company has determined that it will owe $56,211 in tax if its taxable income rises to $565,000. What is the marginal tax rate at this level of income?
Elmer’s Glues are produced in upstate New York and sold throughout the country. Shipment is either direct from the factory or via regional warehouses, including one in the Los Angeles area. Inventory transfers to the West Coast move by truck. The pe..
A 9-year annuity of 18 $8,800 semiannual payments will begin 10.5 years from now, with the first payment coming 11 years from now. If the discount rate is 12 percent compounded semiannually, what is the value of this annuity nine years and seven year..
Find the price of the gap option under Black-Scholes framework.
A bond has a coupon rate of 9 percent and 5 years until maturity. If the yield to maturity is 8.4 percent, what is the price of the bond?
What is the first monthly payment (payment at t=1) for each of the following loans? Each loan is for a property bought for $500,000 with an 80% LTV ratio. LIBOR is currently at 2.5%
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