Question

In: Finance

ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares...

  1. ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares of 6 percent preferred stock (annual dividend=$6) and 300,000 semi-annual bonds of $1,000 face value with a coupon rate of 8 percent semiannual bonds outstanding. The bonds were issued five years ago with maturity of 30 years when they were issued. The market price of common stock is $46 per share and has a beta of 0.85, the preferred stock currently sells for $90 per share, and the bonds sell for 108 percent of par. The market risk premium is 7.5 percent and T-bills yield 4 percent. The firm pays taxes at 21 percent. What is the WACC for the firm? (2 points)

Answer

  1. You want to build a portfolio with a beta of 1.12. Right now you have invested $10,000 in Stock K with a beta of 0.95 and $6,500 in Stock L with a beta of 1.35. You have another $3,500 to invest and you want to divide this amount between Stock M with a beta of 1.62 and a risk-free asset. How much should be invested in the risk-free asset to achieve a portfolio beta of 1.12? (2 points)

Answer

  1. You purchased a bond with the face value of $1,000 and an annual coupon rate of 7.2 percent last year for $862.5. Currently, the bonds are selling for $825.25. If the inflation rate last year was 1.9% percent, what is your exact real rate of return on this investment? (2 points)

Answer

  1. You want to buy a car from ABC Inc. The cost of the car is $29,900. The sales tax, destination charges, plate & registration will add 9.5% to the cost of the car. You will finance   the entire amount for 60 months at an APR of 3.9% with the first payment due immediately. What are your monthly payments? (2 points)

Answer

  1. Firm A is considering a merger with Firm B. The current market value of A is $20,000,000 and the volatility of asset return is 58% percent. A also has a zero coupon bond with a face value of $8,000,000 that matures in 3 years. B’s market value is $9,000,000 with standard deviation of asset return of 70% and a zero coupon bond of $3,000,000 that matures in 3 years. The continuously compounded risk free rate is 4%. After the merger the combined company will have asset volatility of 48%. What are the current market values of debt and equity for A, B, and the combined firm? You need to compute 6 values (1 for D and 1 for E for the three firms: A, B, and (A+B). (3 points)

Answer

  1. ABC owns a machine and looking to sell it in 1 year. The machine costs $10,000,000 currently. The price of the machine has a historical volatility of 12%. A buyer is interested in entering into a contract to have the option to buy the machine in one year for $10,000,000. If the risk-free rate is 6% compounded continuously, what is the value of the option contract? (3 points)

Answer

Solutions

Expert Solution

Apologies but I am allowed only one question

ABC owns a machine and looking to sell it in 1 year. The machine costs $10,000,000 currently. The price of the machine has a historical volatility of 12%. A buyer is interested in entering into a contract to have the option to buy the machine in one year for $10,000,000. If the risk-free rate is 6% compounded continuously, what is the value of the option contract? (3 points)

Answer: Value of option contract is 812484.2860

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

26) ABC Inc. has 10 million shares of common stock outstanding. The firm also has1,200,000 shares...
26) ABC Inc. has 10 million shares of common stock outstanding. The firm also has1,200,000 shares of 6 percent preferred stock (annual dividend=$6) and 300,000 semi-annual bonds of $1,000 face value with a coupon rate of 8 percent semiannual bonds outstanding. The bonds were issued five years ago with maturity of 30 years when they were issued. The market price of common stock is $46 per share and has a beta of 0.85, the preferred stock currently sells for $90...
Suppose a firm has 10 million shares of common stock outstanding at a price of $40...
Suppose a firm has 10 million shares of common stock outstanding at a price of $40 per share. The firm also has 300,000 bonds outstanding with a current price of $1050. The outstanding bonds have yield to maturity 7.1%. The firm's common stock beta is 1.4 and the corporate tax rate is 35%. The expected stock market return is 10% and the T-bill rate is 1.5%. What is the WACC for this firm? (Enter your answer to 4 decimal places...
ABC Corporation has 1/2 million shares of common stock outstanding, 1 million shares of preferred stock,...
ABC Corporation has 1/2 million shares of common stock outstanding, 1 million shares of preferred stock, and 20,000   4.5% semiannual bonds outstanding. The common stock has a beta of 1.2. The corporate bond has a par value of $1,000 each and matures in 21 years. Currently the bonds are selling at 104% of their face values. The market risk premium is 10%. The risk-free rate is 2.5%. The common stock sells for $75 per share. The preferred stock sells for...
Delta, Inc. has 10 million shares of common stock outstanding and 120,000 bonds with an 8%,...
Delta, Inc. has 10 million shares of common stock outstanding and 120,000 bonds with an 8%, semiannually payable coupon rate and a par value of $1,000 each. The common stock currently sells for $40 per share and has a beta of 1.25. The bonds have 10 years remaining to maturity and sell for 90% of par value. The risk-free rate is 4%, the market risk premium is 8%, and the tax rate is 35%. Using this information, compute the weighted...
Empire Today Inc. has 10 million shares of common stock outstanding, 300,000 shares of 5% preferred...
Empire Today Inc. has 10 million shares of common stock outstanding, 300,000 shares of 5% preferred stock outstanding, and 7 million of 6.7 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $85 per share and has a beta of 1.15, the preferred stock currently sells for $103 per share, and the bonds have 20 years to maturity and sell for 93% of par. The market risk premium is 11 percent, T-bills are yielding 2.14...
Empire Today Inc. has 10 million shares of common stock outstanding, 300,000 shares of 5% preferred...
Empire Today Inc. has 10 million shares of common stock outstanding, 300,000 shares of 5% preferred stock outstanding, and 7 million of 6.7 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $85 per share and has a beta of 1.15, the preferred stock currently sells for $103 per share, and the bonds have 20 years to maturity and sell for 93% of par. The market risk premium is 11 percent, T-bills are yielding 2.14...
1) Empire Today Inc. has 10 million shares of common stock outstanding, 300,000 shares of 5%...
1) Empire Today Inc. has 10 million shares of common stock outstanding, 300,000 shares of 5% preferred stock outstanding, and 7 million of 6.7 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $85 per share and has a beta of 1.15, the preferred stock currently sells for $103 per share, and the bonds have 20 years to maturity and sell for 93% of par. The market risk premium is 11 percent, T-bills are yielding...
Fairyland Inc. has 4 million shares of common stock outstanding, 1 million shares of preferred stock...
Fairyland Inc. has 4 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 200 thousand bonds. The common shares are selling for $25 per share, the preferred share are selling for $10 per share, and the bonds are selling for 95 percent of their $1,000 par. (See P10-3 for formula to calculate weights). A. What would be the weight used for equity in the computation of FarCry’s WACC? B. What weight should you use for...
OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock...
OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 7,000 bonds. Suppose the common shares sell for $17 per share, the preferred shares sell for $16 per share, and the bonds sell for 108 percent of par. What weight should you use for preferred stock in the computation of OMG’s WACC? (Round your answer to 2 decimal places.)
ABC Industries has 5 million shares of common stock outstanding with a market price of $20.00...
ABC Industries has 5 million shares of common stock outstanding with a market price of $20.00 per share. The company also has 1 million shares outstanding preferred stock with a market price of $8.50 per share, and 200,000 bonds outstanding, each with a face vale $1,000 and selling at 97.5% par value. The cost of equity is 12%, the cost of preferred is 10%, and the cost of debt is 7.46%. If ABC's tax rate is 34% what is the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT