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Imprudential, Inc., has an unfunded pension liability of $581 million that must be paid in 20 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present.
If the relevant discount rate is 7.4 percent, what is the present value of this liability? (Enter your answer in dollars not in millions, e.g., 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Present value $
Hedging to offset risk (LO5) The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $138,000 per contract. What will be the profit or loss on the f..
Suppose the average return on Asset A is 6.3 percent and the standard deviation is 7.5 percent and the average return and standard deviation on Asset B are 3.4 percent and 3.0 percent, respectively. In a particular year, the return on Asset A was −4...
CAPM and Cost of Capital. Suppose the Treasury bill rate is 4% and the market risk premium is 7%. (LO12-3) a. What are the project costs of capital for new ventures with betas of .75 and 1.75? b. Which of the following capital investments have positi..
Thomas Brothers is expected to pay a $3.1 per share dividend at the end of the year (that is, D1 = $3.1). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 19%. What is the stock's curr..
Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating workin..
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.28 and the total portfolio is equally as risky as the market. What is the beta for the second stock?
The expected return on any asset is dependent upon its beta. Explain what Beta is, why it is used and its relevance to investment decisions. Then select a large capitalization stock (GOOG, NFLX, KO, PEP, CMG, WMT, MSFT) and identify their company bet..
The Caughlin Company has a long-term debt ratio of .33 and a current ratio of 1.90. Current liabilities are $890, sales are $6,310, profit margin is 8.8 percent, and ROE is 19.4 percent. What is the amount of the firm’s net fixed assets?
Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll road in North Carolina. The initial investment in paving equipment is $81.4 million. The equipment will be fully depreciated using the straight-li..
Open an additional window, at an additional cost of $18 per hour. The second window will have the same service rate as the first. Each window will have a separate line and the customers will join the shortest line.
Consider the following projects, X and Y where the firm can only choose one. Project X costs $600 and has cash flows of $400 in each of the next 2 years. Project Y also costs $600, and generates cash flows of $500 and $275 for the next 2 years, respe..
Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.10 million. This investment will consist of $2.70 million for land and $9.40 million for trucks ..
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