QUESTION Two firms, No Leverage, Inc. and High Leverage Inc.have equallevels of operating risk and differ only in their capitalstructure. No Leverage is unlevered and High Leverage has$500,000 of perpetual debt in its capital structure. Assumethat the perpetural annual income of both firms availa No Leverage Inc. High Leverage Inc. EBIT (Net Operating Income) $100,000 […]
QUESTION Smith Technologies is expected to generate 150 million in frreecash next year, and FCF is expected to grow at a constant rate of 5percent per year indefinitely. Smith has no debt or preferredstock, and its WACC is 10 percent. If Smith has 50 million sharesof stock outstanding, what is the stocks va step1:Given the […]
QUESTION The earnings, dividends, and common stock price of CarpettoTechnologies Inc. are expected to grow at 11 percent per year inthe future. Carpettos common stock sells for $23 per share itslast dividend was $2.00, and it will pay a dividend of $2.14 at theend of the current year.a) Using the DCF approa Current Price of […]
QUESTION 9. A parceldelivery company delivered 103,000 packages in 2007, when itsaverage employment was 84 drivers. In 2008, the firm handled112,000 deliveries with 96 drivers. What was the percentage changein productivity from 2007 to 2008? Note: the previous answer is mistaken inthe productivity calculations must take into account the number ofworkers. Productivity in 2007: 103,000 […]
QUESTION You have estimated the following probability distributions ofexpected future returns for stock X and Y:Stock XProbability Return0.1 -10%0.2 a)expected return of stock X = 0.1 *(-10%) 0.2 *10% 0.4 *15% 0.2 *20% 0.1*40%=15%expected return of stock Y = 0.2 *2% 0.2*7% 0.3 *12% 0.2*15% 0.1*16%= 10% b) variance of stock X = 0.1 (15 […]
QUESTION Return data on three assets A, B, and C.EXPECTEDRETURN Investment Alterna Alternative 1: Year Return 2007 16 2008 17 2009 18 2010 19 Average return = (16 17 18 19) / 4 = 17.5 Variance of returns = (16 17.5)^2 (17 17.5)^2 (18 17.5)^2 (19 17.5)^2 = 5 Std dev of returns = sqrt(5) […]
QUESTION The Bailey Brothers want to issue 20-year, zero coupon bonds thatyield 9 percent. What price should it charge for these bonds if theface value is $1,000? a. $157.25 b. $163.70 c. $171.93 d. $194.49 e. $202.64A bond yielded a real rate of return of 4.79 percentfor a time period when the inflation rat Number […]
QUESTION Consider the following information and then calculate the requiredrate of return for the SI Fund. The total investment in the fund is$2,000,000. The market rate of return is 15% and the risk free rateis 7%.StockInvestmentBetaA$200,0001.50B$300,000-0.50C$500,0001.25D$1,000,0000.75 Amount Invested Beta Percent Invested 200,000 1.50 10% 300,000 -0.50 15% 500,000 1.25 25% 1,000,000 0.75 50% p = […]
QUESTION Which fluctuate more, long-term or short-term interest rates?Why?(Points: 4) imum impact is felt on the short term rates. On the other hand, long term interest rates do not change frequently on year to year expectations. Also, the short term rates are determined by inter-bank transactions done overnight. Since bank requirements fluctuate widely, so does […]
QUESTION Assumethat you have been hired as a consultant by CGT, a major producerof chemicals and plastics, including plastic grocery bags,styrofoam cups, and fertilizers, to estimate the firms weightedaverage cost of capital. The balance sheet and some otherinformation are provided below.AssetsCurrent Calculating Cost of Equity(R E ): Based on the CAPM, Cost of Equity (R […]
