Cyberdyne Systems is a military/defense products company. Cyberdyne Systems is all equity financed. Cyberdyne has 200 million shares outstanding which trade for $20 per share. Cyberdyne’s shareholders require a return of 10%. Omni Defense Products Inc is also a military/defense products company. It’s shares are trading for $35 per share. Omni has 100 million shares […]
Which of the following statements about risk is false? A) Risk is one of the determinants of the required return. B) Risk requires the possibility of at least one outcome less favorable than the expected value. C) Risk requires the possibility of more than one outcome. D) High risk should require low return. […]
As a foreign exchange trade at Deutsche Bank, one of your customers would like a yen quote on Australian dollars. The current spot market rates are ¥101.37-85/U.S.$ and A$1.2924-44/U.S.$. What bid and ask yen cross rates would you quote on spot Australian dollars? What will be an ideal response? ANSWER Answer: By means […]
Orange Inc, a cell-phone manufacturer, is an all equity firm. At the end of the current year, the CFO expects EBIT to be $100 and the same earnings are expected annually in perpetuity. The company is not growing so CAPEX and investments in net working capital are zero. The cost of equity for Orange is […]
Which of the following do not have a principal-agent conflict? A) Shareholders and the Board of Directors B) The Board of Directors and the CEO C) Shareholders and bondholders ANSWER B
The Cramden Bus Company is currently all equity financed, but it is considering a leveraged capital structure, the details of which are presented in the table under the column labeled ‘Proposed’. Assume that the company generates perpetual annual EBIT. Assume that all cash flows occur at the end of the year and we are currently […]
The cash manager at AmFlex Company needs to buy 1,000,000 British pounds to pay a British supplier. A currency broker quotes him a bid-ask rate of ₤.4865-.5116/US$. What will be the dollar cost the 1,000,000 pounds? A) $2,055,499 B) $1,954,652 C) $486,618 D) $511,587 ANSWER Answer: A
The Kansas City Southern Railroad (KCSR) currently has a levered capital structure, but it is considering a proposal to issue new equity (@$15/share) and use the proceeds to retire its debt. Selected financial information for KCSR is provided in the table below. Assume that KCSR generates perpetual annual EBIT at a constant level. Assume that […]
What is most different about the foreign exchange market versus the New York Stock Exchange? What will be an ideal response? ANSWER Answer: The interbank foreign exchange market is a very large, diverse, over-the-counter market, not a physical trading place such as the New York Stock Exchange where buyers and sellers gather in […]
After a trip to Bordeaux France you are considering opening a restaurant based on Restaurant L’Entrecote. You will offer a fixed menu of salad, steak and French fries. Your innovation is that you will use a bordelaise (red wine) sauce instead of a tarragon butter sauce. You plan to run the restaurant for two years […]
