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a) Equity as an Option and NPV: A company has a single zero coupon bond outstanding that matures in five years with a face value of $20 million. The current value of the company's assets is $15 million, and the standard deviation of the return on the firm's assets is 41 percent per year. The risk-free rate is 6 percent per year, compounded continuously. What is the current market value of the company's equity? What is the current market value of the company's debt? What is the company's continuously compounded cost of debt?
b) The company has a new project available. The project has an NPV of $2,100,000. If the company undertakes the project, what will be the new market value of equity? Assume volatility is unchanged. Assuming the company undertakes the new project and does not borrow any additional funds, what is the new continuously compounded cost of debt? What is happening here?
part a1. give the role amp significance of o.r. in business amp industry for scientific decisions.2. the primary
Define a period's state to be the period's beginning inventory level. Determine the transition matrix that could be used to model this inventory system as a Markov chain.
What is the present value of the following future amount? $495,461 to be received 15 years from now, discounted back to the present at 6.36 percent, compounded daily.
The 6-month, 1-yr, 1.5-yr, and 2-yr interest rates are 1.75%, 2.00%, 2.25% and 2.50% with continuous compounding. Calculate the equivalent 6-month, 1-yr, 1.5-yr, and 2-yr interest rates with “quarterly” compounding.
Assess the relevant cash flows used in forming a capital budgeting decision model. For this assignment, focus upon an expansionary problem. Evaluate the cost of capital (wacc) for use in a capital budgeting decision model. Make sure to define each co..
Set up the amortization schedule for a five-year, $1 million, 9 percent term loan that requires equal annual end-of-year principal payments plus interest on the unamortized loan blaance. What is the effective interest cost of this loan?
Garden Pro Corporation has sales of $4,611,770; income tax of $483,762; the selling, general and administrative expenses of $243,981; depreciation of $388,811; costs of goods sold of $2,496,450; and interest expense of $166,022. Calculate the firm’s ..
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Suppose dell has no debt and a wacc of 9.3%. The average debt to value ratio for the software industry is 9.3%. What would be its cost of equity if it took on the average amount of debt for its industry at a cost of debt of 6.5%?
You are given the following information concerning a stock and the market: Returns Year Market Stock 2008 15 % 27 % 2009 14 30 2010 15 6 2011 –14 –24 2012 37 16 2013 15 25 1. Calculate the average return and standard deviation for the market and the ..
Which of the following is commonly forecasted as a percent of sales:
Greta, an elderly investor, has a degree of risk aversion of A = 5 when applied to return on wealth over a 3-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of 3-year strategies. If the correlation coe..
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