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A privately hold corporation wishes to estimate its cost of equity. The firm has a target debt-to-equity ratio of 0.5 and the marginal tax rate is 35%. The yield on 10 year U.S. Treasury securities is 4% and the expected market risk premium is 6%. It has identified 3 pure play firms with the following equity betas and debt-to-equity ratios:
Firm ......... Beta ........... D/E Ratio
A ............... 1.8 ............ 0.6
B ............... 1.2 ............ 0.4
C .............. 2.1 ............ 0.8
What is the firm's estimated equity beta (levered beta)? What is the cost of equity for the privately held firm?
Complete the proof of the “no arbitrage lemma” for the equality cases. We know for the put-call-parity that an European call is equivalent to an European put plus a future that have the same strike price and maturity assuming the underlying stock pay..
Folic acid inc. has $20 million in earnings pays $2.75 million in interest to bondholders and $1.80 million in dividends to preferred stockholders. a) What are the common stockholders residual claims to earnings? b) What are the common stockholders l..
You are preparing a vacation to Europe in the future. You plan to save $400 a month beginning today, and estimate you earn 1% per month on your savings. Your goal is to save $5,000. How long it take to save this amount?
What is the market value of the following bond? Why when I plug this in excel am I getting the answer but its a negative number?
Pickard Company pays its sales staff a base salary of $4,500 a month plus a $3.00 commission for each product sold. If a salesperson sells 800 units of product in January, the employee would be paid:
Using a diagram, illustrate how cognitive biases can affect management decisions and risk-taking. Provide a conceptual model for how data and risk analytics can affect risk-taking by the firm via its impacts on cognitive bias.
Mom’s Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $41,000; it is now five years old, and it has a current market value of $18,000. The old oven is being depreciated over a 10-year life toward..
The ___ of a given outcome is its chance of occurring.
For the average business leader who is not in a finance role, how do risk, return, and the cost of capital impact him or her? How can you synthesize this into the workplace?
URN Inc. recently paid a $5.00 annual dividend. The dividend is expected to grow at a 4% rate. At a current stock price of $52, what is the return shareholders are expecting? Expected Return Market value of Assets = Market value of Net Fixed Assets +..
You are the manager of 10 people in a large organization. Everyone becomes very suspicious and upset when they receive a memo from the HR department saying their jobs are going to ve evaluated. What will you do in response to their concerns? (Give Ci..
A firm is considering the acquisition of a new machine. The base price is $85,000 and it would cost $15,000 to install. The machine is MACRS 3 year class property and it will be sold after 3 years for $17,000. The machine would also require an increa..
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