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Suppose that five years ago you borrowed $500,000 using a 30-year fixed-rate mortgage with an annual interest rate of 8% with monthly payments and compounding. The interest rate on 30-year fixed-rate mortgages has fallen to 7.5% and you are wondering whether you should refinance the loan. Refinancing costs are expected to be 5% of the new loan amount.
a. What is the net present value of refinancing if you make all of the scheduled payments on the new loan?
b. What is the net present value of refinancing if you pay off the new loan at the end of the 3rd year?
c. How many payments do you need to make on the new loan in order for refinancing to have a positive net present value?
Bruce & Co. expects its EBIT to be $49,000 every year forever. The company can borrow at 8 percent. The company currently has no debt, and its cost of equity is 11 percent. If the tax rate is 35 percent, what is the value of the company? What will th..
A machine at a bottling plant that has a first cost of $150,000, operating and maintenance costs of $17,500 per year, and an estimated net salvage value of $25,000 at the end of thirty years. Assume an interest rate of 8%. What is the present equiv..
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Consider a simple financial model with two times, t = 0, 1, a single stock, S, which pays no dividends, and a one period interest rate r = .10. The initial price per share of the stock is S0 = $30. Consider a contract that requires it’s owner to rece..
Crisp Cookware's common stock is expected to pay a dividend of $2.5 a share at the end of this year (D1 = $2.50); its beta is 1.15; the risk-free rate is 3.5%; and the market risk premium is 4%. The dividend is expected to grow at some constant rate ..
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