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Barenbaum Industries projects that cash outlay of $4.5 million will occur uniformly throughout the year. Barenbaum lans to meet its cash requirements by periodically selling marketable securities from its portfolio. The marketable securities are invested to earn 12%, and the cost per transaction of converting securities to cash is $27.
a) Use the Baumol model to determine the optimal transaction size for transfers from marketable securities to cash.
b) What will be average cash balance?
c) How many transfers per year will be required?
d) What will be total annual cost of maintaining cash balances? What would the total cost be if the company maintained an average cash balance of $50,000 or of $0 (it deposits funds daily to meet cash requirements)
Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F and G. The firm's cost of capital, r, is 15%, and the risk free rate (Rf) is 10%. The firm has gathered the following basic cash flow and risk index data fo..
The Berndt Corporation expects to have sales of $11 million. Costs other than depreciation are expected to be 60% of sales, and depreciation is expected to be $2.2 million. Suppose Congress changed the tax laws so that Berndt's depreciation expenses ..
Sterling, Cooper, Draper, Price would like to go public to raise $58 million to support expected growth. Their investment bank charges the following: 7.7% underwriting spread for a firm commitment. The underwriter feels that the IPO will be priced at..
Differentiate two types of creditors: short-term vs. long-term creditors. What are the specific financing needs that are being serviced by each type? Cite references
Pasqually Mineral Water, Inc., will pay a quarterly dividend per share of $1.55 at the end of each of the next 12 quarters. Thereafter, the dividend will grow at a quarterly rate of 1.5 percent, forever. The appropriate rate of return on the stock is..
Suppose we have the following returns for large-company stocks and Treasury bills over a six year period: Year Large Company US Treasury Bill 1 3.89 5.81 2 14.14 2.47 3 19.13 3.70 4 –14.55 7.13 5 –32.04 5.18 6 37.37 6.16 a. Calculate the arithmetic a..
In your class discussion for this week, you will examine the different considerations involved in promoting a business "Product." First, visit a local retail store and look at the brand names, package designs, and labels for various products. descri..
A company is issuing preferred stock that will pay a 4% dividend but will not pay the first dividend until 6 years from now. If the required return is 8%, what is the value of the stock today? Assume a par value of $100.
Grossman Enterprises has an equity multiplier of 3.08 times, total assets of $1,596,000, an ROE of 15.10 percent, and a total asset turnover ratio of 3.15 times. Calculate the firm’s sales and ROA.
Mark M. Upp has just been fired as the university bookstore manager for setting prices too low (only 20 percent above suggest retail). He is considering opening a competing bookstore near the campus, and he has begun an analysis of the situation. Wha..
why is it not enough for companies to work on attracting new customers? what methods can companies use to retain their existing customers?, and what role, if any do databases play in helping companies build relationships with their new and existing c..
How can you find the weights to be used for the WACC and which are more appropriate (market versus book)? What does WACC stand for and why is it important when dealing with the Cost of Capital?
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