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An investor owns a security that is expected to return 14 percent in a booming economy and 6 percent in a normal economy. The overall expected return on the security is 8.88 percent. Given there are only two states of the economy, what is the probability that the economy will boom?
JJ industries will pay a regular dividend of $2.40 per share for each of the next four years. At the end of the four years, the company will also pay out a $40 per share liquidating dividend, and the company will cease operations. If the discount rat..
Harrelson Inc. currently has $715,000 in accounts receivable, and its days sales outstanding (DSO) is 71 days. It wants to reduce its DSO to 35 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the compan..
Thompson & Jones has earnings before interest and taxes of $149,000. Both the book and the market value of debt is $265,000. The unlevered cost of equity is 13.5 percent while the pre-tax cost of debt is 9 percent. The tax rate is 34 percent. What is..
A garage band wants to hold a concert. The expected crowd is 3,000. The average expenditure on concessions is $15. Tickets sell for $10 each, and the band’s profit is 80% of the gate, along with concession sales, minus a fixed cost of $10,000. Develo..
Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50¢ per widget. Firm B has total fixed costs of $240,000 and variable costs of 75¢ per widget. If the economy is..
A company currently pays a dividend of $3.5 per share (D0 = $3.5). It is estimated that the company's dividend will grow at a rate of 17% per year for the next 2 years, then at a constant rate of 8% thereafter. The company's stock has a beta of 1.5, ..
Your client is 35 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $15,000 per year; and you advise her to invest it in the stock market, which you expect to provide an average re..
Suppose the 1-year futures price on a stock-index portfolio is 1,624, the stock index currently is 1,600, the 1-year risk-free interest rate is 3%, and the year-end dividend that will be paid on a $1,600 investment in the market index portfolio is $2..
A firm has a net profit margin of 4.5% on sales of $12 million. Suppose the firm's total capital is $8 million of which debt ratio of 60% and interest rate of 8%. Calculate the firm's return on assets (ROA).
Determine the IRR on the following projects: Initial outlay of $35,000 with an after-tax cash flow at the end of the year of $5,836 for seven years. Initial outlay of $350,000 with an after-tax cash flow at the end of the year of $70,000 for seven ye..
Size-up HCM using historical ratio analysis and a discussion of its business risk and financial risk and the Q1 tab reproduces HCM's financial statements and forecasts for your convenience.
The price of a 10-year $100 par zero coupon inflation-indexed bond is $88.91. A real-estate property is expected to yield 2% per quarter (nominal) with a SD of the (effective) quarterly rate of 10%. Compute the annual rate on the real bond.
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