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In: Finance
Rackin Pinion Corporation’s assets are currently worth $1,240. In one year, they will be worth either...
Rackin Pinion Corporation’s assets are currently worth $1,240. In one year, they will be worth either $1,200 or $1,490. The risk-free interest rate is 7 percent. Suppose the company has an outstanding debt issue with a face value of $1,000. a. What is the value of the equity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Equity value $ b-1 What is the value of the debt? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Debt value $ b-2 What is the interest rate on the debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number, e.g., 32.) Interest rate % c. Would the value of the equity go up or down if the risk-free rate were 8 percent? Increase Decrease
Solutions
jeff jeffy answered 4 months agoRelated Solutions
Rackin Pinion Corporation’s assets are currently worth $1,065. In one year, they will be worth either...
Rackin Pinion Corporation’s assets are currently worth $1,065.
In one year, they will be worth either $1,000 or $1,340. The
risk-free interest rate is 3.9 percent. Suppose the company has an
outstanding debt with a face value of $1,000.
A) What is the value of equity?
B) What is the value of debt? The interest rate on debt?
C) Would the value of equity go up or down if the risk-free
interest rate were 20 percent? What does your answer...
The assets of Uptown Stores are currently worth $3,300. These assets are expected to be worth...
The assets of Uptown Stores are currently worth $3,300. These
assets are expected to be worth either $2,450 or $3,500 one year
from now. The company has a pure discount bond outstanding with a
$3,100 face value and a maturity date of one year. The risk-free
rate is 4 percent. What is the value of the equity in this
firm?
The assets of Uptown Stores are currently worth $3,300. These assets are expected to be worth...
The assets of Uptown Stores are currently worth $3,300. These
assets are expected to be worth either $2,450 or $3,500 one year
from now. The company has a pure discount bond outstanding with a
$3,100 face value and a maturity date of one year. The risk-free
rate is 4 percent. What is the value of the equity in this
firm?
Cliff Corp (CC) is a relatively risky firm that will have assets worth next year either...
Cliff Corp (CC) is a relatively risky firm that will have assets
worth next year either $100 million, $120 million or $330 million
with equal probability. Given the risk, the required rate of return
on firm assets is 18%. CC also has two outstanding bonds: senior
bonds with a face value $95 million cost of debt of 4% and junior
debt with a face value of $30 million and a cost of debt of 12%. If
CC defaults on either...
Wolfrum Technology (WT) has no debt. Its assets will be worth $451 million one year from...
Wolfrum Technology (WT) has no debt. Its assets will be worth
$451 million one year from now if the economy is strong, but only
$213 million in one year if the economy is weak. Both events are
equally likely. The market value today of its assets is $258
million. a. What is the expected return of WT stock without
leverage? b. Suppose the risk-free interest rate is 5 %. If WT
borrows $104 million today at this rate and uses...
Suppose there are two one-year assets. You cannot buy a fractional portion of either asset. Asset...
Suppose there are two one-year assets. You cannot buy a
fractional portion of either asset. Asset A costs $100 to buy and
in one year pays a total of either $120 or $90, with equal
probability. Asset B costs $200 to buy and in one year pays a total
of either $180 or $240. When Asset A pays $120, Asset B pays $180
(and when Asset A pays $90, asset B Pays $240). You buy two of
Asset A and...
Suppose there are two one-year assets. You cannot buy a fractional portion of either asset. Asset...
Suppose there are two one-year assets. You cannot buy a
fractional portion of either asset. Asset A costs $100 to buy and
in one year pays a total of either $120 or $90, with equal
probability. Asset B costs $200 to buy and in one year pays a total
of either $180 or $240. When Asset A pays $120, Asset B pays $180
(and when Asset A pays $90, asset B Pays $240). You buy two of
Asset A and...
(a) Ericson Corporation’s total assets are projected to increase by $30 million next year. Ericson is...
(a) Ericson Corporation’s total assets are projected to increase
by $30 million next year. Ericson is also scheduled to repay $14
million in debt next year. Other than this repayment, no changes in
liabilities are currently scheduled. Ericsons’s income is projected
to be $4 million, half of which will be paid as a dividend. What is
the amount of Ericson’s External Funds Needed (EFN) for next
year?
(b) Ericson’s $4 million net income consists of $33 million in
revenues, less...
A project is worth $18 million today. One year from today, the project will be worth...
A project is worth $18 million today. One year from today, the
project will be worth $22 million with high demand and $14 million
with low demand. It will also be possible to sell the project off
for $16 million one year from today. Using risk neutral
probabilities, which of the following is closest to the value of
the abandonment option if the risk-free rate is 4% per year?
$0.79 million
$1.58 million
$2.71 million
$3.45 million
An investment was worth $38 two years ago, $52 one year ago, and is worth $46...
An investment was worth $38 two years ago, $52 one year ago, and
is worth $46 today. The holding period return for the most recent
year only (from 1 year ago to today) is
_______%. If your answer is negative, be sure to
include a negative sign preceding your answer (ex. -.045678 or
-4.5678% should be entered as: -4.57).
A(n) 3.3% bond with 6 years left to maturity has a YTM of 5.5%.
The bond's price should be $__________. You should...
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