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The expected change in the dollars to euro exchange rate is 0.5% per month and the standard deviation of the monthly rate of change is 1.5%. If the current spot rate is $1.10 per euro and the one month forward rate is 1.12 per euro what is the probability that a speculator who sold euros using the forward contract will lose money? (Compute the probability of the future spot rate being higher than the forward rate observed now.)
Calculate the company's cost of equity capital using both the dividend capitalization model approach and the Capital Asset Pricing Model approach.
What is operating leverage? How, if at all, is it similar to financialleverage? If a firm has high operating leverage would you expect it tohave high or low financial leverage? Explain your reasoning. Why might it make sense for a mature, slow-growth..
Companies Udon and Lever are identical in every aspect except that Udon is un-leveraged while Lever has $15 million of 6 percent bonds outstanding. What value would MM estimate for each firm? What is the required return on equity (Ks) for Lever? What..
As CFO of Mayknn Corporation you observe the preferred stock that Mayknn issued 75 years ago at a par value of $100 is now selling for $64. In addition this preferred stock now pays a dividend of $1.28. Mayknn is in the 28% tax bracket and has a cred..
Assume you sell 100 shares of Larson Corporation short at $61. You also buy a 60 call option for $3.5 to protect against the stock price going up. If the stock ends up at $80, what will be your overall gain or loss? If the stock ends up at $40, what ..
For the given cash flows below, assume the cash flow is the same in the next 2 years. Compute the NPV for each project, and compute the incremental IRR. Compare and explain why NPV always gives the correct decision. What is the best way to select a p..
The preferred stock of Marble Comics pays annual dividends of S3 in perpetuity (starting in one year). If you buy a preferred share for $22.36 and hold it in perpetuity, then what is your annual rate of return? Express your answer as a percentage rou..
Write a memo to your supervisor explaining the cash conversion cycle at your company, a manufacturer of plastic toys. Be sure to address the following: Material ordering costs-Labor costs-Credit sales (accounts receivables)
SRS, Inc. just paid an annual dividend of $2.4 last month. The required return is 13.9 percent and the dividend growth rate is expected to be constant at 2.1 percent. What is the expected value of this stock ten years from now?
The Brownstone Corporation's bonds have 6 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. What is the yield to maturity at a current market price of $803?
Reynaldo and Sonya, a married couple, had flood damage in their home due to a faulty water heater during 2015, which totally ruined the furniture that was stored in their garage. What is the amount of casualty loss that Reynaldo and Sonya can claim o..
You buy a share of The Ludwig Corporation stock for $19.40. You expect it to pay dividends of $1.07, $1.16, and $1.2576 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $28.27 at the end of 3 years. Calculate the growth rat..
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