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Suppose you are the manager and sole owner of a highly leveraged company. All the debt matures in 1 year (there are no intermediate coupons or other debt payments). If at that time the value of the company (VA) is greater than the face value of debt (K), you will pay off the debt. If the value of the company is less than the face value of the debt, you will declare bankruptcy and the debt holders will own the company.
a. Express your position payoff as sole shareholder as a function of the value of the assets of the company. What option do you hold?
b. Express the position payoff of the debt holders in terms of options on the value of the assets of the company. What position do creditors hold?
c. Suppose your company’s assets are worth $19 million. Your company owes debt with face value of $20 million in 1 year. The risk-free interest rate is 4%. You value your equity position at $1 million. What should be the market value of the company’s debt? What rate of interest are debt holders earning?
The present value interest factor for an ordinary annuity is:
Identify the companys primary competitors and Show the size in revenues or market cap of the company along with its top competitors.
A 1,920-square-foot house is near Center City and is on a major traffic artery. Nearby single-family properties have been rezoned for office use and the trend is in that direction. The site measures 100 x 200 feet. Its value is $4.50 per square foot ..
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You burrow $80,000 for 10 years at 4% how much money will you save, over the life of the loan, if you pay off the loan by making payments every two weeks instead of at the end of the month?
Consider a 30-year corporate bond paying 9 percent semi-annual coupon. The current yield to maturity is 11 percent. Find the modified duration. Refer to part a. If the interest changes by 25 basis points, what is the exact change in price?
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What is kinston's pre-tax cost of debt? What is kinston's cost of preferred stock? What is kinston's cost of equity. What is kinston's capital structure weight of the preferred stock?
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