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On each nondelinquent sale Cast Iron receives revenues with a present value of $1,270 and incurs costs with a present value of $1,120. Assume there is no possibility of repeat orders and that the probability of successful collection from the customer is p = .96. a-1. What is the expected profit of granting credit? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) Expected profit $ per sale a-2. Should Cast Iron grant or refuse credit? Grant Refuse b. What is the break-even probability of collection? (Enter your answer as a percent rounded to 1 decimal place.) Break-even probability %
Enterprise Storage Company has 440,000 shares of cumulative preferred stock outstanding, which has a stated dividend of $7.75. it is six years in arrears in dividend payments. How much in total dollars is the company behind in its payments? $20,460,0..
You can buy an item for $130 on a charge with the promise to pay $130 in 90 days. What is the effective annual rate of interest?
AA Tours is comparing two capital structures to determine how to best finance its operations. The first option consists of all equity financing. The second option is based on a debt-equity ratio of 0.45. What should AA Tours do if its expected earnin..
One year ago, ACME issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent and pay interest annually. Today, the market rate of interest on these bonds is 7.2 percent. How does the price of these bonds today compare to the issue pric..
Mrs. Wilson enters into a contract to buy an automobile for $20,000 from Z Co., a dealer. Mrs. Wilson subsequently backs out of the contract. Z Co. then sells the vehicle to Mr. Thompson for $19,000. Z Co. sues Mrs. Wilson for breach of contract. The..
How do flotation costs affect the cost of capital? Are these costs about the same for each of the three capital components? How do they change as the firm raises larger and larger amounts of capital, and how do flotation costs affect the way a compan..
Howell Petroleum, Inc., is trying to evaluate a generation project with the cash flows. what is the NPV of the project? Compute the IRRs for this project.
A financial analyst tells you that investing in stocks will allow you to double your money in 7 years. What annual rate of return is the analyst assuming you can earn?
As the economy moves through a business cycle, there is a pronounced shift in the size of default risk premiums. Briefly explain the default risk premium changes as we move through the business cycle. Why does it change?
Leo Motor's bonds have ten remaining years to maturity. What is the current market price of these bonds.
When Owens Corning emerged from bankruptcy in 2006, the debt holders became the sole owners of the company. But the old stockholders were not left entirely empty handed. They were given warrants to buy the new common stock at any point in the next se..
July Markets has a beta of -0.29. The risk-free rate of return is 0.0227 and the market rate of return is 0.0584. What is the risk premium on this stock?
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