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Santa Claus is considering an equity issue to fund a new automatic stocking stuffer. This will require $20 million of new equity. Cheatem & Steele, Santa’s investment bankers are going to charge a fee of 8% of the funds raised, how large does this stock issue have to be? Also, what is the dollar amount of the flotation cost?
The Easter Bunny currently has 4 million shares outstanding. The stock sells for $25 a share. To raise $15 million for a new marshmallow peep recipe, the bunny is considering a right’s offering at $20 a share. What is the value of the right in this case? What is the ex-right’s price?
Weston Industries has a debt-equity ratio of 1.5. Its WACC is 12 percent, and its cost of debt is 10 percent.
The demand for housing is often described as being highly cyclical and very sensitive to housing prices and interest rates. Given these characteristics, describe the effect of each of the following in terms of whether it would increase or decrease th..
An exchange rate is currently 0.8000. The volatility of the exchange rate is quoted as 12% and interest rates in the two countries are the same. Using the lognormal assumption, estimate the probability that the exchange rate
Last year you sold short 400 shares of stock selling at ?$74.39 per share. Six months later the stock had fallen to ?$38.62 per share. Over the? six-month period the company paid out two dividends of ?$2.05 per share. Your total commission cost for s..
A firm is looking to invest in a new sports drink. They must invest $4 million today and another $4 million in one year. They expect that in two years, they will receive $3 million in free cash flow, and this will continue for 5 years (so the final $..
Recently Boeing has maintained a cash balance of over $10 billion. At an annual inflation rate of about 2 percent, does cash have more or less purchasing power at the end of a given year than at the beginning? By how much? Is such a gain or loss refl..
A newly issued 20-year maturity, zero-coupon bond is issued with a yield to maturity of 8.6% and face value $1,000. Find the imputed interest income in the first, second, and last year of the bond's life.
What is the duration of a bond with four years to maturity and a coupon of 9.6 percent paid annually if the bond sells at par?
You purchase one IBM March 160 put contract for a put premium of $13. The maximum profit that you could gain from this strategy is _________. You write one IBM July 138 call contract for a premium of $15. You hold the option until the expiration date..
the importance of your understanding of business loans and financing costs and investment terms.
Tom Barnes contributed equipment, inventory, and $43,222 cash to the partnership. The equipment had a book value of $28,168 and market value of $34,262. The inventory has a book value of $41,721, but only had a market value of $13,719. due to obsoles..
Based on its' growth prospects, a private investor values a local bakery at $750,000. She believes that cost savings having a PV of $50,000 can be achieved by changing staffing levels and store hours. She believes the appropriate liquidity discount i..
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