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Five years ago Two Towers Inc. issued bonds that pay a 7 percent coupon. At issue these bonds were rated BBB, but today they are rated AAA. Which of the following is most likely based on this information?
The bonds have more interest rate risk than when they were issued.
The bonds have more liquidity risk than when issued.
The bonds carry a larger default premium than when issued.
The bonds carry a smaller default premium than when issued.
The bonds now trade at a premium to par.
the weighted avg. cost of capital is equal to B/S(Rs)(1-Tc), the cost of equity for an all-equity firm is less than the cost of equity for levered firm. the cost of levered equity is indirectly related to beta. the discount rate for levered equity is..
Given this information, what should be forward price for no arbitrage opportunity?
Your firm is contemplating the purchase of a new $545,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $53,000 at the end of that time. You will save $295,000 before..
When a bond goes on special, the repo rate for borrowing against that bond goes below the General Collateral Rate (GCR) which applies to all other Treasury bonds. Why does that not lead to arbitrage opportunities?
Sparrow Corporation is a calendar year taxpayer. Capital gains in the amount of, Taxable dividend income in the amount of,
What is financial disintermediation?
Vedder, Inc., has 7 million shares of common stock outstanding. The current share price is $62.00, and the book value per share is $5.00. Vedder also has two bond issues outstanding. The first bond issue has a face value of $71 million, a coupon rate..
On May 10, a company issued for cash 2,000 shares of no-par common stock (with a stated value of $4) at $17, and on May 15, it issued for cash 3,000 shares of $17 par preferred stock at $61. Journalize the entries for May 10 and 15, assuming that the..
In order to fund her retirement, Michele requires a portfolio with an expected return of 0.11 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock..
Cast Iron Company, on each nondelinquent sale, receives revenues with a present value of $1,270 and incurs costs with a value of $1,085. Cast Iron has been asked to extend credit to a new customer. Calculate the minimum probability at which credit ca..
Ngala LLC has 5,000 bonds outstanding which are currently priced at $1,200 each. The bonds pay a coupon of 7.6% (paid semiannually) and mature in 7 years. What is the firm’s weighted average cost of capital?
Red Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. Assume that the increment to the market value of the equity equals the gross pr..
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