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The Saunders Investment Bank has the following financing outstanding. Debt: 120,000 bonds with a coupon rate of 8 percent and a current price quote of 110; the bonds have 20 years to maturity. 290,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Assume semiannual compounding. Preferred stock: 210,000 shares of 6 percent preferred stock with a current price of $70, and a par value of $100. Common stock: 3,200,000 shares of common stock; the current price is $56, and the beta of the stock is 1.05. Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk-free rate is 4 percent.
Explain how derivative securities are used to find certainty equivalent cash flows. How would you use these cash flows in valuation?
Maxine Leo, vice president of marketing for 3D-vious Printers, Inc., must decide whether to introduce a mid-priced version of the firm’s 3D printer product line—the 3D X. The 3D X would sell for $3,900 with unit variable costs of $1,800. Should Maxin..
The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $31,000 per year forever. If the required return on this investment is 6.3 percent, how much will you pay for the policy?
James McCulloch purchased a 20-year U.S. Treasury bond four years ago for $8,500. The bond paid 3.500 percent annual interest. Four years later he sold the bond for $8,580. What is the annual interest amount for the bond? What is the total interest M..
An investor buys a call at a price of $4.80 with an exercise price of $43. At what stock price will the investor break even on the purchase of the call?
You used Dell as a representative company to estimate the cost of capital for GCI. What are some of the potential problems with this approach in this situation? What improvements might you suggest?
What is the expected price of Stock C four years from now if growth (g) is 6%, and the investors are requiring 11%, (the required rate of return, r is 11%) and the current dividend, Do, is $1.75. Calculate expected P^4.
John Jones currently holds tax-exempt bonds that pay 7% interest and is in the 32% tax bracket. He is considering buying taxable bonds. With all else the same, what interest rate on the taxable bonds will he need to get the same after-tax return as t..
Calculate the following. Cost of equity using dividend discount model: Cost of preferred stock: Cost of debt. Include both. Briefly discuss the difference in your calculation and the bosses’ calculation. Where did he go wrong?
You have identified the following information for the competitors of a firm that you are analyzing. Given that the firm has 100M shares outstanding how much should it be worth in the market?
A loan is to amortized by n level annual payments of X, where n≥6. You are given: i) The amount of interest in the first payment is $ 458.44. ii) The amount of interest in the third payment is $ 432.92. iii) The amount of interest in the fifth paymen..
Bright Sun, Inc. sold an issue of 30-year $1,000 par value bonds to the public. The bonds had a 12.12 percent coupon rate and paid interest annually. It is now 12 years later. The current market rate of interest on the Bright Sun bonds is 12.03 perce..
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