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U.S. Robotics (USR) has a current (and target) capital structure of 70 percent com- mon equity and 30 percent debt. The beta for USR is 1.4. USR is evaluating an investment in a totally new line of business. The new investment has an expected internal rate of return of 15 percent.
USR wishes to evaluate this investment proposal. If the investment is made, USR intends to finance the project with the same capital structure as its current business. USR's marginal tax rate is 34 percent. USR has identified three firms that are pri- marily in the line of business into which USR proposes expanding. Their average beta is 1.7, and their average capital structure is 40 percent common equity and 60 percent debt. The marginal tax rate for these three firms averages 40 percent. The risk-free rate is 8 percent, and the expected market risk premium is 8.3 percent. Should USR undertake the project?
Big Chill, Inc. sells portable dehumidifier units at $187. Unit variable costs are $111. Fixed costs are $4,175,000. Management has set a profit objective of 15.2% return on sales. Calculate the sales volume in dollars that will provide a 15.2% retur..
Change in Cost of Capital. Assume that Naperville Co. will use equity to finance a project in Switzerland, while Lombard Co. will rely on a dollar-denominated loan to finance a project in Switzerland, and Addison Co. will rely on a Swiss franc-denomi..
A Treasury bond with the longest maturity (30 years) has an ask price quoted at 97:06. The coupon rate is 2.70 percent, paid semi annually. What is the yield to maturity of this bond?
Consider a 1-period binomial model with R=1.02, S0=100, u=1/d=1.05. Compute the value of a European call option on the stock with strike K=102. The stock does not pay dividends. Please submit your answer rounded to two decimal places.
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $11 million but realizes after-tax inflows of $5 million per year for 4 yea..
Assume that the U.S. income level rises at a much higher rate than does the Canadian income level. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium..
calculate the balance sheet-based accruals and cash flow-based accruals ratios. Analyze the ratios and other information,of Wal -Mart and write an assessment of financial reporting quality.
Which one of the following will occur when the internal rate of return equals the required return? Explain why?
How do we calculate the payback period for a proposed capital budgeting project? What are the main criticisms of the payback method?
If the before tax RD equals 8% and the firms’ tax rate equals 25%, how much is the Rre using the Bond-Yield-plus-Risk-Premium method?
a 3- year fully amortizing constant payment mortgage loan for 320000 is to be made with an interest rate of 5.
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.2 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected..
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