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Rock Inc. is planning to invest in the development of a new product which will take 5 years to develop and will cost $250,000 per year during the development stage. Thereafter, the new product is expected to generate cash flows of 350,000 per year for 12 years. The cost of capital is estimated to be 8%. Is this investment worth undertaking?
Calls Puts Strike Close Price Expiration Vol. Last Vol. Last Hendreeks 103 100 Feb 72 5.20 50 2.40 103 100 Mar 41 8.40 29 4.90 103 100 Apr 16 10.68 10 6.60 103 100 Jul 8 14.30 2 10.10 Suppose you buy 35 February 100 call option contracts. How much is..
A share of stock is now selling for $105. It will pay a dividend of $7 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 7% and the expected rate of re..
What is the present value of $1,825 per year, at a discount rate of 9 percent, if the first payment is received 8 years from now and the last payment is received 24 years from now?
Stock Y has a beta of 1.35 and an expected return of 14.3 percent. Stock Z has a beta of 0.8 and an expected return of 10.7 percent. Required: What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?
Ang Enterprises has a levered beta of 1.16, a capital structure with a 40 percent debt ratio, and a marginal tax rate of 35 percent. What would Ang's beta be if it used no debt in its capital structure, i.e., what is its unlevered beta?
Describe how you could estimate their values. If you are investing in the stock market, which would you invest in and why?
Jerry just purchased a bond paying semiannual interest for a price of $1,000. Yields on bonds of similar risk are 9.8%. The bond has a face value of $1,000. Based on this information, the coupon rate of the bond is:
What is the present value of the following payment stream, discounted at 8% annually; $1000 at the end of year 1, $2000 at the end of year 2, and $3000 at the end of year 3?
Ross Clark wishes to endow a chair in finance at his alma mater. The university indicated that it requires $200,000 per year to support the chair, and the endowment would earn 10% per year. Rather than making contributions to an IRA at the end of eac..
Calculating Cost of Debt Gauss Corporation issued 20-year Bonds bearing a 9% coupon, payments made semiannually, 7 years ago. The bonds currently sells for 108 percent of par value. The company’s tax rate is 38 percent. The Book Value of this issue i..
The current dividend for Woods Corp. is $4 per share. The firm is expected to increase its dividend by 15% during the next year and then decrease the growth rate of dividend payouts to a constant 10% per year thereafter. If the required return on the..
The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a 2-year project in the United States. If this project were instead undertaken by a similar U.S.-based company with the same risk-adjusted cost o..
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