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Assume that a bond makes 30 equal annual payments of $1,000 starting one year from today. (This security is sometimes referred to as an amortizing bond.) If the discount rate is 3.5% per annum, what is the current price of the bond? (Hint: Recognize that this cash flow stream is an annuity and that the price of an asset is the present value of its future cash flows.)
Why is $100 today worth more to you than $100 in one year’s time even if the rate of inflation is zero? If interest rates rise, would you rather be holding a 30-year Treasury bond or a 90-day Treasury bill? Please explain. What is the yield to maturi..
Graser Trucking has $10 billion in assets, and its tax rate is 30%. Its basic earning power (BEP) ratio is 20%, and its return on assets (ROA) is 6%. What is its times-interest-earned (TIE) ratio? Round your answer to two decimal places
Suppose you purchase a $1,000 TIPS on January 1, 2013. The bond carries a fixed coupon of 1 percent. Over the first two years, semi annual inflation is 2 percent, 2 percent, 4 percent, and 2 percent, respectively. For each six-month period, calculate..
Global gum company (GGC) has decided to issue $150 million in common stock to raise funds to finance future growth. GGC's stock currently sells for $25 per share. How many shares does GGC plan to issue? If flotation costs are 8 percent, how much of t..
On October 1st Martin Corp have the following balance in stockholders’ equity. What are the balances in the three stockholders equity accounts after the new shares have been distributed? What, if any, is the new par value?
Calculate the PV of a 20-year California lottery pot paying $50,000 annually at the discount rate of 10%. Is it $1 million, why or why not? Calculate the price of a three-year treasury bond/note paying 5% coupon on $1,000 face value at the discount r..
A firm wishes to maintain an internal growth rate of 7.5 percent and a dividend payout ratio of 25 percent. The current profit margin is 5.9 percent, and the firm uses no external financing sources. What must total asset turnover be?
With a tax rate of 40% and a total capital structure of $10,000,000. We need to calculate the WACC for the following two scenarios. Composition of capital structure. Which is the best for option for the company? Explain.
A stock has an expected return of 15.5 percent, a beta of 1.50, and the expected return on the market is 12.1 percent. What must the risk-free rate be?
Gargoyle Unlimited is planning to issue a zero coupon bond to fund a project that will yield its first positive cash flow in three years. That cash flow will be sufficient to pay off the entire debt issue. The bond's par value will be $1,000, it will..
Consider a 30-year, $140,000 mortgage with a rate of .0620 percent. Thirteen years into the mortgage, rates have fallen to 5 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate ..
Firms HL and LL are identical except for their leverage ratios and the interest rates they pay on debt. Each has $18 million in invested capital, has $5.4 million of EBIT, and is in the 40% federal-plus-state tax bracket. Calculate the return on inve..
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