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Explain risks compensated for in bond yields.
default risk, credit ratings
tax effects
market abiility
embedded options
yield to maturity
Ernie Manufacturing has projected sales of $155 million next year. Costs are expected to be $100 million and net investment is expected to be $17.5 million. Each of these values is expected to grow at 14 percent the following year, with the growth ra..
Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semi annual interest payments. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6..
The underlying goal of commercial bank management is to maximize the wealth of the bank’s shareholders, which implies maximizing the price of the bank’s stock (if the bank is publicly traded). A bank’s board of directors needs to monitor bank manager..
Is the return on equity (ROE) affected by the use of financial leverage? Why does this result occur? Should Router choose the capital structure that maximizes its expected ROE? Explain.
Double taxation on profits is:
Bey Co. issued 20-year, $1,000 bonds at a coupon rate of 7 percent. The bonds make annual payments. If the YTM on these bonds is 5 percent, what is the current bond price?
The Leventhal banking company is thinking of expending their operations into a new line of pastries. The form expects to sell $350,000 of the new product in the first year and $500,000 each year thereafter. Prepare a statement showing the incremental..
You have a loan of $25,000 and will repay the loan over 5 years at 8% interest. What is your loan payment? What does the amortization schedule look like?
If the bonds coupon rate is greater than the general interest rates in the market, the Bond will sell at a:
Firm AB and Firm YZ are identical except for their debt-to-total-assets ratios (D/TAs) and interest rates on debt. Each has $200,000 in assets, $40,000 EBIT, and a 40 percent marginal tax rate. Firm AB has a D/TA ratio of 40 percent and pays 7.5 perc..
Lamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 45; and it currently pays after 5 days and takes discounts. Lamar plans to expand, which will require additional financing. Assume 365 days in year for your calculation..
A manager believes his firm will earn a 12 percent return next year. His firm has a beta of 1.2, the expected return on the market is 8 percent, and the risk-free rate is 3 percent. Compute the return the firm should earn given its level of risk and ..
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