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Lorre, Inc., recently issued new securities to finance a new TV show. The project cost $13.1 million, and the company paid $635,000 in flotation costs. In addition, the equity issued had a flotation cost of 6.1 percent of the amount raised, whereas the debt issued had a flotation cost of 2.1 percent of the amount raised. If the company issued new securities in the same proportion as its target capital structure, what is the company’s target debt–equity ratio? (Do not round intermediate calculations and round your final answer to 4 decimal places. (e.g., 32.1616))
Kim Yee is 30 years of age and he visits his financial planner. He tells his financial planner that he would like to have $10,000 per month in his retirement. (He retires at age 60 and is expected to live till 100). When he is 45, he will receive $20..
What are the duration and modified duration of a seven-year, 3.5 percent coupon rate, annual coupon payment, $1000 par value government note priced today to yield 3 percent to maturity. What is the convexity of this instrument?
What would an investor pay for a stock, if his required rate of return is 12%, the stock next year’s dividend is $3/share, and the dividend is expected to grow at 4%?
Which of the following does not pertain to asset backed securities?
The maximum federal tax rate on personal income in 2010 was 50%. Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lowe..
Financial analysts have estimated the returns on shares of Drucker Corporation and the overall market portfolio under various economic conditions as follows. The analyst considers each state to be equally likely. Using these data, compute the beta of..
If a firm buys on trade credit terms of 3/10, net 50 and decides to forgo the trade credit discount and pay on the net day, what is annualized cost of forgoing the discount (assume a 360-day year)?
The price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $30 is quoted as $7 and the price of a one-year European call option on the stock with a strike price of $50 is quoted as $5. Draw a diagram ..
What is the relation between a corporate bond’s expected return and the yield to maturity? In your answer, define default risk and explain how these rates incorporate default risk.
Which one of the following transactions occurred in the primary market?
A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g =-5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the..
A firm has earnings before interest and tax of $25380 with net income of $14220 the taxes amounted $5400 for the year. During the year the firm paid out $43800 to pay off existing debt and then later borrowed an additional $24000 what is the amount o..
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