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The Oakland Shirt Company has computed its indifference level of EBIT to be $500,000 between an equity financing option and a debt financing option. Interest expense under the debt option is $200,000 and interest expense under the equity option is $100,000. The EBIT for the firm is approximately normally distributed with an expected value of $620,000 and a standard deviation of $190,000.
a. What is the probability that the equity financing option will be preferred to the debt financing option?
b. What is the probability that the firm will incur losses under the debt option?
Byron Books, Inc. recently reported $9,545,882 in net income. The firm's EBIT was $22,866,672, and its tax rate was 35%. What is the firm's interest expense?
The covariance of the returns between willow stock and sky diamond stock is 0.0900. The variance of willow is 0.2350, and the variance of sky diamond is 0.1180. What is the correlation coefficient between the returns of the two stocks?
Twice Shy Industries has a debt−equity ratio of 1.4. Its WACC is 9.4 percent, and its cost of debt is 6.7 percent. The corporate tax rate is 35 percent. What is the company’s cost of equity capital? What is the company’s unlevered cost of equity capi..
Davidsons has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of $45 per share. The balance sheet shows $15,000 in the common stock account, $158,000 in the capital in excess of par account, and $132,500 in the ..
A five-year project has an initial fixed asset investment of $335,000, an initial NWC investment of $35,000, and an annual OCF of −$34,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
In this assignment describe and explain the differences between the three different types of interest rates one from the Federal Reserve, one from a bank for business, and one from any financial institution for a consumer loan.
For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow 0 –$ 148,000 1 68,000 2 71,000 3 55,000 Requirement 1: At a required return of 9 percent, what is the NPV of the project? (Do not round intermediate calculations. R..
Accumulated Value of an Annuity Certain. Formula for annuity certain is ((1+j%/12)^60-1)/(j%/12)=66.67.... but no software can apparently solve this! An accumulated value of an annuity certain with n=60, and interest = j%/12, is equal to=66.67.........
The cash prices of six-month and one-year Treasury bills are 94.0 and 89.0. A 1.5-year bond that will pay coupons of $4 every six months currently sells for $94.84. A two-year bond that will pay coupons of $5 every six months currently sells for $97...
Assume that the returns from an asset are normally distributed. The average annual return for this asset over a specific period was 17.1 percent and the standard deviation of those returns in this period was 41.7 percent. What is the approximate prob..
Hoste Corp. issued a $1,000 face value 20-year bond 7 years ago with a 12% coupon rate. The bond is currently selling for $1,804.84. What is its yield to maturity (YTM)? Assume bond coupons are paid semiannually. Round the answer to the nearest whole..
Explain the difference between a bull market and a bear market. Discuss the frequency with which returns as bad as those during 2007-2009 occur. How would you characterize the current state of the stock market?
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