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You are considering acquiring a firm that you believe can generate expected cash flows of $19,000 a year forever. However, you recognize that those cash flows are uncertain. a. Suppose you believe that the beta of the firm is 1.3. How much is the firm worth if the risk-free rate is 3% and the expected rate of return on the market portfolio is 8%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of the firm $ b. How much is the overvalue of the firm if its beta is actually 1.8? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Overvalue $
what if it suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower coupon bonds?
ABC Corp believes the following probability distribution exists for its stock. What is the coefficient of variation on the company's stock?
Corporations must identify its capital needs prior to assessing appropriate capital structure. The next step is for the firm to undertake all considerations in finishing necessary analysis to ensure its capital structure is suitable.
You manage a $10 million endowment fund and would like to write index calls to generate some income. Suppose the OCT 320 OEX call sells for $1.13, and the current level of the index is 315.66. How much income can you generate in a cash account?
Determine how these companies could engage in an interest rate swap to decrease their cost of financing.
A different bond pays 6.5% annual interest once per year, has 9 years to maturity, and a $1,000 par or maturity value. Given the risk level of this bond the market demands a 8.2% interest rate. What is the value of this bond today?
Also has 6% interest rate. What's the NPV of the ticket scalping venture?
He plans to invest in a five-year bond issued by Venice Corp. that pays an annual coupon of 4.84 percent. If the current market rate is 7.29 percent, what is the maximum amount Pierre should be willing to pay for this bond?
Salt and Pepper incurred $14.9 million in depreciation expense and paid $25.5 million in taxes on EBIT in 2012. Calculate Salt and Pepper's 2011 EBIT.
1.Consider a 3-yr corporate bond paying a coupon of 7% per year payable semi-annually and has a yield of 5% (expressed with semi-annual compounding). Assume the yield for all maturities on risk-free bonds is 4% per annum. Assume that default can take..
a) What are the long-term expectations that need considerations and why are they important? b) What are the short-term expectations that need considerations and why are they important?
Projected fixed costs are $742,000 and the anticipated annual operating cash flow is $211,000. What is the degree of operating leverage for this project?
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