In: Finance
Today Stock A is worth $25 and has 1000 shares outstanding. Stock B costs $30 and has 500 shares outstanding. Stock C is priced at $50 per share and has 1200 shares outstanding. If tomorrow Stock A is priced at $22, Stock B at $35, and Stock C is worth $48, what would the value-weighted index amount equal? (The index has a base period value of 100.)
In: Finance
What are some of the weaknesses behind risk-based capital standards? ( 250 words or less).
In: Finance
the answers need to be shown in a timeline as well as the answer in #5
=Future value*rate/((1+rate)^t-1)5. You want to buy a boat in 5
years and need to have $8,000 available to use as a down payment.
How much would you need to save each year to reach that goal and
your money will earn 9%? H
=Future value*rate/((1+rate)^t-1)
=8000*9%/(1.09^5-1)
=1336.739656
6. Refer to #5. Instead of saving each year, you want to save each month to reach your desired $8,000. Assume the same rate and term as above. Note: you cannot divide your answer to #5 by 12.
7. Sandy is buying a car and wants to get a loan of $8,000. If the rate is 6% and term is 5 years, what would the monthly payments be?
8. Diane is going to save $300 every 6 months (twice a year) for 10 years. If the rate is 8%, how much will she have?
9. Ken is going to save $300/month for 10 years, but will start TODAY. If the rate is 8%, how much will he have? Note the difference in your answer to this problem from #8. Explain WHY is there a difference in your answers?
10. Uncle Guido wants to give you a gift. He tells you he will write a check to you of $1500 in 1 year, $2,600 in year 2 and $3,000 in year 3. How much does Guido have to set aside now in order to have sufficient funds to write all of those checks? Assume a 10% rate.
11. You get a loan of $100,000 for 10 year term. If the payments are $1,801.85/month, what is the interest rate on this loan (remember all rates are always quoted as annual figures)? Hint: set up timeline and determine which type of TVM problem it resembles. Then solve.
12. Carla will give $200 to you every three months for 10 years (4x per year). At year 10 she will also give $10,000 to you. What amount of money must be available in her bank account in order for her to have enough money to meet her promise. The rate is 12%. Hint: this problem is a combination of 2 types of TVM problems. Your final answer is the sum of the two.
13. Brett has contract that will pay him $10,000 at the end of 5 years. Brett wants money now and not in 5 years, so he is willing to have contract signed over to you (so you would receive that money) if you give him some money today. If you require a 12% interest rate on money you lend to friends. What is the maximum amount you would you be willing to pay for this contract?
In: Finance
How does the creation of a portfolio reduce risk? What type of assets should be included in a diverse portfolio? Why should they be included?
In: Finance
How important is it that an organization have an exclusive right to exercise a real option? That is, can we really say that an option being considered has value if competitors may exercise it also?
In: Finance
Consider a project to supply 106 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,735,000 five years ago; if the land were sold today, it would net you $1,810,000 aftertax. The land can be sold for $1,754,000 after taxes in five years. You will need to install $5.65 million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project’s five-year life. The equipment can be sold for $715,000 at the end of the project. You will also need $605,000 in initial net working capital for the project, and an additional investment of $56,000 in every year thereafter. Your production costs are .54 cents per stamp, and you have fixed costs of $1,110,000 per year. If your tax rate is 22 percent and your required return on this project is 8 percent, what bid price should you submit on the contract? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)
| Bid Price |
In: Finance
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Titan Mining Corporation has 8.5 million shares of common stock outstanding and 250,000 5.2 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.25; the bonds have 15 years to maturity and sell for 114 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 4 percent, and the company’s tax rate is 21 percent. |
| a. |
What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .3216.) |
| b. | 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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
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In: Finance
Home Place Hotels, Inc., is entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when it is complete, it should allow the company to enjoy much improved growth in earnings and dividends. Last year, the company paid a dividend of $4.80. It expects zero growth in the next year. In years 2 and 3, 4% growth is expected, and in year 4, 17% growth. In year 5 and thereafter, growth should be a constant 12% per year. What is the maximum price per share that an investor who requires a return of 18% should pay for Home Place Hotels common stock?
The maximum price per share that an investor who requires a return of 18% should pay for Home Place Hotels common stock is____
In: Finance
(a) NPV at the end of the project (discount rate 15%)
(b) IRR at the end of the project.
|
Year (n) |
0 |
1 |
2 |
3 |
4 |
||
|
Capex |
-$600,000 |
- |
- |
- |
- |
||
|
Income |
- |
$200,000 |
$200,000 |
$200,000 |
$200,000 |
||
|
Undiscounted cash flow |
|||||||
|
P/F (15%) |
|||||||
|
Discounted cash flow |
|||||||
|
IRR |
- |
- |
- |
- |
In: Finance
Explain the key ideas to be kept in mind before moving from part-time to full-time entrepreneurship.
In: Finance
True or false
ALL OF THEM PLEASE!!!
In: Finance
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Steinberg Corporation and Dietrich Corporation are identical companies except that Dietrich is more levered. Both companies will remain in business for one more year. The companies' economists agree that the probability of the continuation of the current expansion is 70 percent for the next year, and the probability of a recession is 30 percent. If the expansion continues, each company will generate earnings before interest and taxes (EBIT) of $3.4 million. If a recession occurs, each company will generate earnings before interest and taxes (EBIT) of $1.8 million. Steinberg's debt obligation requires the company to pay $970,000 at the end of the year. Dietrich's debt obligation requires the company to pay $1.9 million at the end of the year. Neither company pays taxes. Assume a discount rate of 12 percent. |
| a-1. |
What is the value today of Steinberg's debt and equity? (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) |
| Steinberg's | |
| Equity value | $ |
| Debt value | $ |
| a-2. |
What is the value today of Dietrich's debt and equity? (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) |
| Dietrich's | |
| Equity value | $ |
| Debt value | $ |
| b. | Steinberg’s CEO recently stated that Steinberg’s value should be higher than Dietrich’s because the company has less debt and therefore less bankruptcy risk. Do you agree or disagree with this statement? | ||||
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In: Finance
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Cavo Corporation expects an EBIT of $21,000 every year forever. The company currently has no debt, and its cost of equity is 12 percent. The corporate tax rate is 35 percent. |
| a. |
What is the current value of the company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Company value | $ |
| b-1. |
Suppose the company can borrow at 10 percent. What will the value of the company be if it takes on debt equal to 50 percent of its unlevered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Company value | $ |
| b-2. |
Suppose the company can borrow at 10 percent. What will the value of the company be if it takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Company value | $ |
| c-1. |
What will the value of the company be if it takes on debt equal to 50 percent of its levered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Company value | $ |
| c-2. |
What will the value of the company be if it takes on debt equal to 100 percent of its levered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Company value | $ |
In: Finance
|
Fountain Corporation’s economists estimate that a good business environment and a bad business environment are equally likely for the coming year. The managers of the company must choose between two mutually exclusive projects. Assume that the project the company chooses will be the company’s only activity and that the company will close one year from today. The company is obligated to make a $5,400 payment to bondholders at the end of the year. The projects have the same systematic risk but different volatilities. Consider the following information pertaining to the two projects: |
| Economy | Probability |
Low-Volatility Project Payoff |
High-Volatility Project Payoff |
| Bad | .50 | $ 5,400 | $ 4,800 |
| Good | .50 | 6,550 | 7,150 |
| a. |
What is the expected value of the company if the low-volatility project is undertaken? The high-volatility project? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) |
| Expected value of the company | |
| Low-volatility project | $ |
| High-volatility project | $ |
| b. |
What is the expected value of the company’s equity if the low-volatility project is undertaken? The high-volatility project? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) |
| Expected value of the company's equity | |
| Low-volatility project | $ |
| High-volatility project | $ |
| c. | Which project would the company’s stockholders prefer? | ||||
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| d. |
Suppose bondholders are fully aware that stockholders might choose to maximize equity value rather than total company value and opt for the high-volatility project. To minimize this agency cost, the company's bondholders decide to use a bond covenant to stipulate that the bondholders can demand a higher payment if the company chooses to take on the high-volatility project. What payment to bondholders would make stockholders indifferent between the two projects? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Payment to bondholders | $ |
In: Finance