A $4,000 bond that has a coupon rate of 5.60% payable semi-annually and maturity of 7 years was purchased when the yield was 4.60% compounded semi-annually. What was the book value of the bond after 10 payments?

Valuation of a constant growth stock

Investors require a 17% rate of return on Levine Company's stock (i.e., r_s = 17%).

1. What is its value if the previous dividend was D₀ = $1.50 and investors expect dividends to grow at a constant annual rate of (1) -2%, (2) 0%, (3) 2%, or (4) 13%? Round your answers to two decimal places.

(1) $  
(2) $  
(3) $  
(4) $  

b. Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was 15% and the expected growth rate were (1) 15% or (2) 20%? Are these reasonable results? (please select one)

1. The results show that the formula makes sense if the required rate of return is equal to or less than the expected growth rate.
2. The results show that the formula makes sense if the required rate of return is equal to or greater than the expected growth rate.
3. These results show that the formula does not make sense if the expected growth rate is equal to or less than the required rate of return.
4. The results show that the formula does not make sense if the required rate of return is equal to or less than the expected growth rate.
5. The results show that the formula does not make sense if the required rate of return is equal to or greater than the expected growth rate.

c. Is it reasonable to think that a constant growth stock could have g > r_s? (please select one)

1. It is not reasonable for a firm to grow even for a short period of time at a rate higher than its required return.
2. It is not reasonable for a firm to grow indefinitely at a rate lower than its required return.
3. It is not reasonable for a firm to grow indefinitely at a rate equal to its required return.
4. It is not reasonable for a firm to grow indefinitely at a rate higher than its required return.
5. It is reasonable for a firm to grow indefinitely at a rate higher than its required return.

Next​ year, BHH Co. is expected to pay a dividend of $2.77 per share from earnings of $4.82 per share. The equity cost of capital for BHH is 11.6%. What should​ BHH's forward​ P/E ratio be if its dividend growth rate is expected to be 3.5%

for the foreseeable​ future?

The forward​ P/E ratio is?  (Round to two decimal​ places.)

Pearl Corp. is expected to have an EBIT of $2,900,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $130,000, and $170,000, respectively. All are expected to grow at 19 percent per year for four years. The company currently has $15,000,000 in debt and 1,300,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3 percent indefinitely. The company’s WACC is 8.5 percent and the tax rate is 21 percent

What is the price per share of the company's stock

Share price?

Other things equal, which of the following bonds has the highest interest rate risk? (Hint: you do not need to do any calculation; just do pair-wise comparisons to determine which one is more sensitive to interest rate changes.)

1. A 10-year, 10% coupon bond issued by the US Department of the Treasury.
2. A 10-year, 20% coupon bond issued by the US Department of the Treasury.
3. A 10-year, 20% coupon bond issued by Microsoft.
4. A 15-year, 10% coupon bond issued by Santander.
5. A 15-year zero-coupon bond issued by the Massachusetts State Government.

explain what an efficient frontier is? do you think that the shape and the position of the frontier would be very different had we used monthly returns instead of annualized returns?

Moore & Moore (MM) is considering the purchase of a new machine for $50,000, installed. MM will use the CCA method to depreciate the machine. This machine is included in CCA class 8 (20%). MM expects to sell the machine at the end of its 4-year operating life for $10,000. If MM’s marginal tax rate is 40%, what will be the present value of the CCA tax shield when it disposes of the machine at the end of Year 4? Assume that the relevant discount rate is 10%.

We are examining a new project, which is a scale expansion of our existing business, i.e. the nature of our new project is very similar to our existing business. We are a focused firm, operating in one industry. We expect to sell 6 million units per year at a price of $650 and a variable cost of $585. Annual fixed costs are expected to be $300 million. The project requires an initial investment of $200 million in equipment, to be depreciated on a straight-line basis over the 10 years. It also requires an investment of $100 million in working capital, which will be fully recovered at the end of the project. Our company’s equity beta is 1.2, and 30% of our capital structure is debt. However, we expect to finance the project with only 10% debt. The tax rate is 35%, the ten-year treasury bonds are yielding 4.1%, and the equity market risk premium is 7%. We expect to pay an interest rate of 5% on our debt. Assume the debt is riskless, i.e. ??" = 0.

a) The new project is a scale expansion. Why is this information relevant in order to evaluate the project? Discuss.

b) Imagine the project was significantly different from our existing business. Explain how you would obtain relevant variables for valuation

c) compute the WACC of the new project

A company has a bond issued at par K1, 000 and 2 years after being issued the bond is being sold for K1, 200.The coupon rate on the bonds is 10% and had a maturity of 10 years. Find the YTM?

Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,560,000 in annual sales, with costs of $811,000. If the tax rate is 35%, what is the OCF for each year of this project?

Find.

OCF1

OCF2

OCF3

The price of Ervin Corp. stock will either be $61 or $90 at the end of the year. Call options are available with one year until expiration. Continuously compounded T-bills currently yield 5.07 %. Suppose the current price of Ervin stock is $76.

What is the value of the call option, using the risk-free approach, if the strike price is $75 per share? (Round answer to 2 decimal places. Do not round intermediate calculations).

Your boss asks you to compute your company’s cash conversion cycle. Looking at the financial statements, you see that the average inventory for the year was $20,100, accounts receivable averaged $20,600, and accounts payable averaged $18,100. You also see that the company had sales of $147,000 and that cost of goods sold was $117,600. Calculate firm’s cash conversion cycle?