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LaPango Inc. estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept? a. Project B, which is of below-average risk and has a return of 8.5%. b. Project C, which is of above-average risk and has a return of 11%. c. Project A, which is of average risk and has a return of 9%. d. None of the projects should be accepted. e. All of the projects should be accepted.
Clancey Inc. issues $2,155,700 of 7% bonds due in 13 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 12%. What amount will Clancey receive when it issues the bonds?
What is the value of a call option if the underlying stock price is $84, the strike price is $80, the underlying stock volatility is 42 percent, and the risk-free rate is 4 percent? Assume the option has 135 days to expiration.
In late 1993, the Weyerhauser Corporation was considering the use of a so-called “Industrial Development Bond” to help finance the construction of a facility in the state of North Carolina. Why would Weyerhauser’s IRBs have a lower effective annual y..
The MoMi Corporation’s income before interest, depreciation and taxes, was $3.2 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 20% of pre..
The common stock of ABC Homes has an expected return of 13.6% and a beta of 0.7. The expected return on the market portfolio is 16%. What is the risk-free rate?
You expected interest rates to drop at the next Fedral Reserve meeting, in which bond would you like to invest? A. 12% coupon, 30 years to maturity B. I should not invest in any until after the rates decrease C. 12% coupon, 1 year to maturity D. 6% c..
Cyree Inc. has annual sales of $80,000,000; its average inventory is $20,000,000; and its average accounts receivable is $16,000,000. The firm buys all raw materials on terms of next 35 days, and it pays on time. The firm is searching for ways to sho..
Which of the following is not a widely known stock market index?
One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a repayment schedule of $500 per month. You will charge 1.45 percent per month interest on the overdue balance. If the current balance is $13,500, how long..
NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year?
Wheeler Corporation had retained earnings as of 12/31/10 of $15 million. During 2011, Wheeler's net income was $7 million. The retained earnings balance at the end of 2011 was equal to $20 million.
Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, and selling for $1,382.01. At this price, the bonds yield 7.5 percent. What is the coupon rate?
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