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DeVille Industrial Machines issued 151,000 zero coupon bonds four years ago. The bonds originally had 30 years to maturity with a 7.1 percent yield to maturity. Interest rates have recently increased, and the bonds now have an 8.2 percent yield to maturity. If the company has a $46.6 million market value of equity, what weight should it use for debt when calculating the cost of capital?
What has been the effect of higher minimum wage laws in cities such as Seattle, WA? Draw a graph showing the effect these laws have on market for low-skilled labor and upon consumer and supplier surplus (Be careful!). Who benefits from these increase..
You purchased 3,800 shares in the New Pacific Growth Fund on January 2, 2010, at an offering price of $42.00 per share. The front-end load for this fund is 5 percent, and the back-end load for redemptions within one year is 2 percent. what is your to..
The price of a non-dividend paying stock is $19.24 and the price of a 3-month European put option on the stock with a strike price of $20 is $4.22. The risk-free rate is 5% per annum. What is the price of a 3-month European call option with a strike ..
A firm has total assets of $150 million, liabilities of $90 million, and a return on assets of 8%. What is the return on equity? A company’s stock is trading at $35 a share. The company has a P/E ratio of 16, and pays $0.30 in dividends per share. Wh..
You can relate this discussion to other disciplines. For example, Finance. When you have little money, you consume less of everything... except some products, such as sausages (you must have seen in finance that sausages have negative betas): in bad ..
You are looking at a one-year loan of $13,000. The interest rate is quoted as 9 percent plus three points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. Wha..
Compute the weighted average cost of capital on the first $250 million of funds and saven Travel will need to raise $150 of additional capital for expansion. How much of this will be debt and equity?
It will cost $3,900 to acquire a small ice cream cart. Cart sales are expected to be $3,100 a year for five years. After the five years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the pa..
Computing annuity payment: John Harper has borrowed $17,400 to pay for his new truck. The annual interest rate on the loan is 9.4 percent, and the loan needs to be repaid in four payments. What will be his annual payment if he begins his payment begi..
Even if the five banks provided the same effective annual rate, would a rational investor be indifferent between the banks? Explain.
University of Texas is considering purchasing a battery. The battery costs $36, has a useful life of 3 years, and will cost $100 per year to keep changed. The battery uses straight line depreciation and the salvage value is zero at the end of year 3...
Consider a project with the following data: accounting break-even quantity = 7,440 units; cash break-even quantity = 6,800 units; life = five years; fixed costs = $170,000; variable costs = $40 per unit; required return = 12 percent. Ignoring the eff..
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