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Consider a firm that can invest $250 right now, at t=0 in a project that will yield a single cash flow one period hence, at t=1. This $250 investment will be raised by issuing unsecured debt at t=0. This project will yield $500 with probability 0.8 and nothing with probability 0.2 at t=1. Immediately after the initial investment but before the end of the period (say t=1/2), the firm can purchase another asset, call it asset A, for $250 also. If purchased, A will yield a sure payoff of $300 at t=1. Those who lend the firm money at t=0 cannot observe at t=1/2 whether the firm had this investment opportunity. Everybody is risk neutral and the riskless rate is 12%. If you are the banker the firm has approached for a $250 loan at t=0, compute the price of your loan in two cases: (i) the firm can finance the acquisition of asset A with unsecured debt or not at all, and (ii) the firm can fiancé the acquisition of asset A with debt secured by the asset in question. Assume that in case (i), your bank (the initial lender) will have the same seniority as the new (unsecured) creditors who supply funds to purchase A. Your bank is competitive in loan pricing.
What would the common savings goals for a person who buys a five year CD paying 5.5 percent instead of an 18-month security certificate paying 4.75 %.
Your coin collection contains 42 1947 silver dollars. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2049, assuming they appreciate at a 10 percent annual rate..
is the best method of analyzing mutually exclusive projects.
Computation of earnings before interest and taxes based on sensitivity analysis and the fixed and variable cost estimates are considered accurate within a plus or minus 6% range
An 8-year bond for Katy Corporation has a market price of $700 and a par value of $1000. If the bond has an annual interest rate of 6 percent, but pays interst semiannually, what is the bond's yeild to maturity?
Compute the future value of this cash flow stream. Do not enter the symbol $ in your answer. Simply enter the answer rounded off to two decimal points.
A mortgage company offers to lend you $85,000; the loan calls for payments of $8,538.98 at the end of each year for 30 years. What interest rate is the mortgage company charging you? Round your answer to two decimal places.
Based on a discounted cash-flow analysis, should the investment to be undertaken?
Davis, Inc., currently has an EPS of $1.10 and an earnings growth rate of 4.5 percent. If the benchmark PE ratio is 16, what is the target share price five years from now?
Management expect the dividends to grow at a constant rate of 10% per year. If the required rate of return on the companys stock is 14%, how much would the stock be worth at the end of three years from today?
How would you estimate the cost of debt for a firm whose only debt issues are privately held by institutional investors?
Objective type questions on annual interest rate and accounts receivable and In a perpetual inventory system, the cost of purchases is debited to
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