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Titan Mining Corporation has 9.9 million shares of common stock outstanding, 430,000 shares of 6 percent preferred stock outstanding, and 225,000 8.7 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $47 per share and has a beta of 1.45, the preferred stock currently sells for $97 per share, and the bonds have 20 years to maturity and sell for 118 percent of par. The market risk premium is 8.7 percent, T-bills are yielding 5 percent, and the company’s tax rate is 40 percent. What is the firm’s market value capital structure? If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows?
You enter into a five-to-eight-month forward rate agreement with a firm. You agree to lend the firm a 3-month loan of $5 million starting 5 months from now, with a quarterly compounded forward interest rate of 2.5% per annum. What is the implied forw..
A medical group practice is considering offering a new service with risk that is greater than the current risk of the business. In evaluating this investment, the decision maker should
Radon Homes's current EPS is $6.16. It was $3.73 5 years ago. The company pays out 55% of its earnings as dividends, and the stock sells for $36. Calculate the historical growth rate in earnings.
To pay for her college education, Gina is saving $2,000 at the beginning of each year for the next eight years in a bank account paying 12 percent interest. How much will Gina have in that account at the end of 8th year?
Sees Inc. has an agreement with it banks that allow Sees to borrow money on a short term basis to finance its inventories and accounts receivable. The agreement requires Sees to maintain a current ratio of 2.1 or higher and a debt ratio of 65% or low..
What is the relation between a corporate bond’s expected return and the yield to maturity? In your answer, define default risk and explain how these rates incorporate default risk.
The company’s manager initially spent a month researching the potential of a new business idea. This cost him $5,000 about a year ago. In addition, he recently hired a group of local consultants, to whom he paid $20,000, to analyze the local market r..
comparing public and private budget preparation strategies
A bond was issued 3 years ago at a coupon rate of 6%. Since then, interest rates have declined to 4%. The bond matures 20 years from today. Compute the current market value of this bond.
Domos Corporation turns its inventory five times each year, has an average payment period of 25 days, and has an average collection period of 32 days. Calculate the firm’s operating cycle and cash conversion cycle. Calculate the firm’s total resource..
Define and discuss the concepts of risk and return. Also discuss the importance of portfolio diversification and its relationship to risk and return.
Suppose that four college students check their FICO scores and discover the information listed below. Describe how lenders might price loans to the borrowers with lower scores versus the borrowers with higher scores in terms of rates and fees charged..
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