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Problem 1
Given that a company's risk-free rate is 1%, the S&P 500 average return is 6%, and a firm has a beta of 0.8, compute the Weighted Average Cost of Capital for the firm given that the firm can borrow from the bank at (on average) an interest rate of 4%. The balance sheet shows that there is $300 million of shareholder equity, and $100 million of long-term debt.
Problem 2
The same company as the firm in Problem 1 (i.e. assume the WACC that you have computed above) is now contemplating the following project that will generate the following cash flows:
Year 1 2 3 4 5
Cash flow 12 12 4 4 7
The initial investment is 33 (all number are $ millions).
Should the firm proceed with the investment?
Does it make a difference if there is uncertainty regarding the cash flows: there is only an 85% chance that the cash will be realized. Assume that the cash flows are reduced by 15% accordingly.
What effect would the actions have on a firm's current ratio and explain what it means for a fi rm to have a current ratio equal to .50. Would the fi rm be better off if the current ratio were 1.50? What if it were 15.0?
Calculate the additional Working Capital Requirement in the year 2010 - In the year 2010, the company wishes to operate at 80% of its capacity at the same Cost Price structure and selling price of 2009.
The bonds are callable in 5 years at a call price of $1050. What is their yield to maturity? What is their yield to call?
Should Lombard replace the existing grinder - The existing grinder can currently be sold for $70,000 but removal and cleanup costs will total $42,000.
You have assembled the given data about the daily trading volume for following two sample groups of stocks during a recent 5 day period.
Regulatory arbitrage as it relates to securitization in the 1980s stems from the fact that financing mortgages was less costly in the capital markets than on the balance sheets of thrifts.
You are told that one corporation just issued 100m dollar of preferred stock & another purchased 100m dollar preferred stock as an investment.
Prepare the Bank Reconciliation Statement as at 31 January 2010 and prepare a schedule of the necessary adjustments to give the correct balance of the Cash at Bank account as at 31 January 2010.
Calculate the gain or loss as a percentage of your original investment for each note and bond and calculate the gain or loss as a percentage of your original investment for each note and bond.
What are some of the advantages of leasing and how would you determine if a real-estate investment is profitable or not?
What is the difference between CCC's expected ROE if it finances with 40% debt versus its expected ROE if it finances entirely with common stock? Round your answer to two decimal places.
How will you approach your analysis of the situation, what variance analysis and / or trends would be helpful to evaluate and what are three possible situations that could be the cause for the shortfall in profits
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