QUESTION Leggio Corporation issued 20-year, 7% annual coupon bonds attheir par value of $1,000 one year ago. Today, the marketinterest rate on these bonds has dropped to 6%. What is thenew price of the bonds, given that they now have 19 years tomaturity?(Points: 4) &n Lets find the present value of the cash flows. We […]
QUESTION Sherry owns 1,000 shares of Taupe Corporation stock with a basisof $15,000 and a fair market value of $20,000. She receivesnontaxable stock rights to purchase additional shares. The rightshave a fair market value of $2,000.a. What are the basis of the stock and thebasis of th Responsedetails: Basis is important because its used to […]
QUESTION Nungesser Coporations outstanding bonds have a $1,000 parvalue a 9 percent semiannual coupon, 8 years to maturity, andan 8.5 percent YTM. What is the bonds price? Calculating Current MarketValue of the Bond : Yield to Maturity (r ) [8.5% / 2] 4.25% Semi-Annual Coupon Payment [$1,000 * 9%/2] $45 Number of years to Maturity […]
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 […]
