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A owns 1,000 shares of IBM and lends them to B, when their fair market value is $100,000. A’s basis in the shares is $20,000. The agreement between A and B provides that B will return 1,000 shares of IBM to B sometime in the future. The contract also provides that B will make payments to B of an equal amount if IBM makes any distributions to its shareholders during the time the loan is outstanding. A has the right to call back the shares on 3 days’ notice. C also has a $20,000 basis in her shares of IBM. C lends them to D when they have a fair market value of $100,000. C’s contract with D has the same terms that A and b have in their contract, with one exception. The difference is that D will always return $100,000 worth of IBM stock at the termination of the loan. Will A recognize any gain when A lends out the shares? Why or why not? Will C recognize any gain when C lends out the shares? Why or why not?
Kiedis Corp. has interest bearing debt with a market value of $75.9 million. The company also has 1.6 million shares that sell for $26 per share. What is the debt–equity ratio for this company based on market values?
Suppose you manage a stock portfolio with a beta of 1.3. There is no dividend yield and the risk-free rate is 3.4% per annum. In 4 months, the S&P500 index changes by 10%. Calculate the expected return of your portfolio in 4 months.
An air purifier for use in manufacturing semiconductors is placed in service with a first cost of $50,000. It will be used for 8 years, have an annual gross income less operating expenses of $14,000 and will have no salvage value. Corporate income ta..
Mikkelson Corporation's stock had a required return of 11.75% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free r..
You own a portfolio that has $2,750 invested in Stock A and $3,900 invested in Stock B. If the expected returns on these stocks are 9% and 14%, respectively, what is the expected return on the portfolio?
Leon Bogut just received a signing bonus of $962,900. His plan is to invest this payment in a fund that will earn 11%, compounded annually. Instead of investing the entire $962,900, Bogut invests $299,500 today and plans to make 10 equal annual inves..
What is the estimated value of this office property (assume a .10 terminal cap rate)?- What is the current, or "going-in," cap rate for this property?
Carpets R Us had earnings after taxes of $800,000 in the year 2014 with 200,000 shares of stock outstanding. On January 1, 2015, the firm issued 50,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnin..
Ron Paul Pharmaceuticals is interested in acquiring Old Drugs Ltd. The projected cash flow statement for Old Drugs after the merger is shown below, and these cash flows are estimated to grow at a constant rate of 6 percent per year: Estimate the equi..
Makers Corp. had additions to retained earnings for the year just ended of $359,000. The firm paid out $181,000 in cash dividends, and it has ending total equity of $4.86 million. The company currently has 150,000 shares of common stock outstanding. ..
A portfolio manager in charge of a portfolio worth $50 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below$45 mil..
To evaluate a proposed capital project effectively, it is important to understand the fundamental concept of incremental cash flows. Incremental cash flows can be viewed as cash flows: Holding all other variables constant, an increase in the cost of ..
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