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Mellors Managment has debt of $1.2 million due at year end (P&I). The company's expected cash flow (no taxes) are $1 million with 40% probability and $2 million with 60% probability. Assuming the equity has an expected return of 25% and the firm is valued at $1.4 million;
1) What is the expected return on the firms debt?
2) How much does the firm's value decrease if bankruptcy costs $0.5 million?
3) What would be the expected return on equity in Mellors had no debt?
The September 2013 Mexican peso futures contract has a price of $0.07713 per MXN. You believe the spot price in September will be $0.08365 per MXN. The contract size of one MXN contract is MXN500,000. (1) What speculative position would you enter int..
Another bond of equal risk, maturity, and par value pays an 8% annual coupon. What is the price of the annual coupon bond?
This set of problems is designed to be calculated using the Excel or financial calculator.
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An investor bought a racehorse for $14 M. The horse’s average winnings were $5,300,000 per year and expenses averaged $500,000 per year. The horse was retired after 2 years, at which time it was sold to a breeder for $9,500,000. Assuming 3 year MACRS..
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What would the after-tax cash flow be from the equipment the equipment is sold in 8 years for 95,000 dollars and the tax rate is 25 percent?
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