Gladstone Corporation is about to launch a new product. Depending on the success of the new​ product, Gladstone may have one of four values next​ year:

$ 146 million,$ 130 million,$ 91million, and $ 79million. These outcomes are all equally​ likely, and this risk is diversifiable. Suppose the​ risk-free interest rate is 5 % and​ that, in the event of​ default, 24 %of the value of​ Gladstone's assets will be lost to bankruptcy costs.​ (Ignore all other market​ imperfections, such as​ taxes.)

a. What is the initial value of​ Gladstone's equity without​ leverage?

Now suppose Gladstone has​ zero-coupon debt with a $ 100 million face value due next year.

b. What is the initial value of​ Gladstone's debt?

c. What is the​ yield-to-maturity of the​ debt? What is its expected​ return?

d. What is the initial value of​ Gladstone's equity? What is​ Gladstone's total value with​ leverage?

Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.

e. If Gladstone does not issue​ debt, what is its share​ price?

f. If Gladstone issues debt of $ 100 million due next year and uses the proceeds to repurchase​ shares, what will its share price​ be? Why does your answer differ from that in part (e​)?

company is planning to open a new interstate branch in Brisbane and the new branch will have access to all data in the main office. What solution would you recommend to secure the data communication between the two branches?

The costs of fighting inflation are higher according to the New Classicals compared to the New Keynesians. Would you agree with this statement? Explain it

Gladstone Corporation is about to launch a new product. Depending on the success of the new​ product, Gladstone may have one of four values next​ year: $146 ​million, $138 ​million, $92 ​million, and $81 million. These outcomes are all equally​ likely, and this risk is diversifiable. Suppose the​ risk-free interest rate is 5% and​ that, in the event of​ default, 28% of the value of​ Gladstone's assets will be lost to bankruptcy costs.​ (Ignore all other market​ imperfections, such as​ taxes.)

a. What is the initial value of​ Gladstone's equity without​ leverage? Now suppose Gladstone has​ zero-coupon debt with a $100 million face value due next year.

b. What is the initial value of​ Gladstone's debt?

c. What is the​ yield-to-maturity of the​ debt? What is its expected​ return?

d. What is the initial value of​ Gladstone's equity? What is​ Gladstone's total value with​ leverage?

Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.

e. If Gladstone does not issue​ debt, what is its share​ price?

f. If Gladstone issues debt of $100 million due next year and uses the proceeds to repurchase​ shares, what will its share price​ be? Why does your answer differ from that in part ​(e​)?

Acme Tools is considering the purchase of a new machine. The total cost of the new machine is $48,000 and it has a 9-year service life with no salvage value at the end of nine years. The annual cash inflow will be 16% of the cost of the machine. If the appropriate cost of capital is 6.0 percent, what is the discounted payback period?
A. less than 8.0 years
B. more than 8.0 years but less than 8.3 years
C. more than 8.3 years but less than 8.6 years
D. more than 8.6 years but less than 8.9 years
E. more than 8.9 years

A firm is evaluating an investment proposal which has an initial investment of $23,500, a cash inflow in year 1 that is presently valued at $9,000, a cash inflow in year 2 that is presently valued at $7,500. a cash inflow in year 3 that is presently valued at $6,000 and a cash inflow in year 4 that is presently valued at $5,500. The appropriate cost of capital is 5.0 percent. The net present value of the investment is:
A. less than $100
B. more than $100 but less than $1,600
C. more than $1,600 but less than $3,100
D. more than $3,100 but less than $4,600
E. more than $4,600

As a new employee in the Lottery Commission, your first job is to design a new prize. Your idea is to create two grand prize choices: (1) receiving the lump sum of $1 million at the end of year 5, or (2) receiving $500,000 today followed by a lump sum amount at the end of year five. Using an interest rate of 8%, which of the following comes closest to the amount prize (2) needs to pay at the end of year five in order for both prizes to have the same present value?

a.

$680,580

b.

$333,333

c.

$1,000,000

d.

$500,000

e.

$265,336

the answer is a or e?

Your company is considering a new project that will require $10,000 of new equipment at the start of the project. The equipment will have a depreciable life of five years and will be depreciated to a book value of $3,000 using straight-line depreciation. The cost of capital is 9 percent, and the firm's tax rate is 34 percent. Estimate the present value of the tax benefits from depreciation. SHOW YOUR WORK

Your company is considering a new project that will require $10,000 of new equipment at the start of the project. The equipment will have a depreciable life of five years and will be depreciated to a book value of $3,000 using straight-line depreciation. The cost of capital is 9 percent, and the firm's tax rate is 34 percent. Estimate the present value of the tax benefits from depreciation.

Your Company is considering a new project that will require $620,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $100,000 using straight-line depreciation. The cost of capital is 11%, and the firm's tax rate is 21%. Estimate the present value of the tax benefits from depreciation.

• $10,920

• $64,310

• $41,080

• $52,000