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Blue Devil Corporation stock, of which you own 500 shares, will pay a $2 per share dividend one year from today. Two years from now Blue Devil will close its doors and stockholders will receive a liquidating dividend of $17.5375 per share. The required rate of return on Blue Devil stock is 15 percent.
(a) What is the current price of Blue Devil stock?
(b) You prefer to receive equal amounts of money in each of the next two years. How can you accomplish this?
In each of the theories of capital structure, the cost of equity increases as the amount of debt increases. So why don't financial managers use as little debt as possible to keep the cost of equity down? After all, aren't financial managers supposed ..
In 2000, the S&P 500 Index earned 29.1 percent while the T-bill yield was 5.9 percent. Does this mean the market risk premium was negative? Explain.
Ampex common stock has a beta of 1.4. If the risk free rate is 8 percent, the expected market return is 16 percent, and Ampex has $20 million of 8 percent debt with 10 years until maturity. It has a yield to maturity of 12 percent and a marginal tax ..
What is the average corporate beta for the projects? Is this consistent with the theory or corporate betas? Why or why not?
Assume you buy a 12-year, $1,000 par value zero-coupon bond that provides a 10 percent yield. Almost immediately after you buy the bond, yields go down to 8 percent. What will be your gain on the investment?
Green Landscaping, Inc. uses net present value (NPV) when evaluating projects. Green Landscaping's cost of capital is 8.84 percent. What is the NPV of a project if the initial costs are $1848903 and the project life is estimated as 6 years? The proje..
What is the equivalent payoff of a portfolio consisting of an up-and-in call and an up-and-out call?
Calculate the cost of capital for Rio Tinto and state two reasons for why it may have declined since the GFC. Justify your answers using theory, calculations and research into current events.
Highlight some of the major risks Procter and gamble faces as well as major risk that the industry faces.
St. Luke's hospital has three support departments and four patient services departments. Assume the hospital uses the direct method for cost allocation. Furthermore, the cost drive for general administration is patient services revenue, the cost driv..
A bond pays an annual coupon of $91 has a face value of $1,000 and has 16 years remaining until maturity. If the current market required rate of return on bonds of this type is 11% what is the market price of the bond? State your answer in dollars an..
Funds acquired by the firm through retaining earnings have no cost because there are no dividend or interest payments associated with them, and no flotation costs are required to raise them, but capital raised by selling new stock or bonds does have ..
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