Q: The present sum needed to provide for an annual withdrawal of $2,000 for 20 years beginning 5 years…
A: Annual withdrawal = $2000 Number of annual withdrawal = 20 Years First withdrawal = beginning of 5th…
Q: What single sum at t=6 is equivalent at 7% compounded annually to the following cash flow profile ?…
A: Interest Rate = 7%
Q: Louis is saving for his retirement by making annual end of year deposits for 30 years into a bank…
A: Future value of Annuity: It is the total value of annuity payments accumulated at a specific time…
Q: A stock is selling for $70 and investors expect its price to be $78.4 in one year. During this time…
A: The Capital Asset Pricing Model is the model used to describe the linear relationship between the…
Q: Statement No. 133 Accounting for Derivative Instruments and Hedging Activities establishes…
A: In the statement of financial position, an entity recognizes all derivatives as assets or…
Q: Lena, a student, receives a monthly allowance of $100, which she spends solely on books and bottles…
A: Given,
Q: Q6. You plan to deposit P100 into a savings account at the end of each month for the next 5 years.…
A: Note: The Answer, given for part b is mentioned incorrect, so we are solving the correct one for you…
Q: Suppose you bought a bond with an annual coupon rate of 7.8 percent one year ago for $901. The bond…
A: Here, To Find: Part a. Total dollar return =? Part b. Total nominal rate of return =? Part c. Total…
Q: At the end of 2021, PT. Wardah International announced a gross profit of $1 million. The costs…
A: earnings available for common stockholders = Net income - preferred Dividend
Q: Expenses incurred but not yet paid or recorded are called prepaid expenses. accrued expenses.…
A: Honor Code: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be…
Q: 5. On October 25 2015, one Euro traded for 1.106 US dollars, and thus one US dollar traded for 0.942…
A: The equilibrium graph shows the relation between the supply and demand of both the currencies. The…
Q: 1.Calculate the nominal and effective rates of interest for the following ordinary annuity. Round to…
A: Effective Annual Rate: The effective annual rate of interest is the actual or the real rate of…
Q: How can bookkeepers and accountants steal from a property, and what steps can be taken to prevent…
A: Embezzlement, misappropriation, theft, stealing, robbery, or call it what you want, which is usually…
Q: Calculate the percentege gain and loss for bearish and bullish stock Mankel Esends. What is the Code…
A: % Gain or loss for Bullish stock = (Sale Value - Purchase Value)/Purchase Value
Q: Determine which of the following two alternatives is the most efficient and which is the most…
A: The method of calculating net present value is known as the internal rate of return method. The…
Q: You go to a phone dealer to buy a new car for 22,000 pesos financed at 3.4% APR, compounded monthly,…
A: The monthly payment can be calculated with the help of present value of annuity function
Q: QUESTION 16 The taxes most relevant for personal financial planning are O a. excise taxes. Ob.…
A: For financial planning, it is relevant for an individual to plan their taxes accordingly to ensure…
Q: The quarterly pay
A: The loan amount refers to the money which a person should owe from a bank or financial institution…
Q: Based on the following table, which option gives you highest risk-adjusted returns? Note you don't…
A: a) Sharpe Ratio: Sharpe Ratio is used to measure return earned in excess of the risk-free return per…
Q: a. calculate the payback period for each project. b. calculate the net present value for each…
A: Payback period is the time required to recover the cost of investment. Payback period = ((Year of…
Q: Q#7. different common stocks. The portfolio's beta is 1.20. Suppose you sell one of the stocks with…
A: The systematic risk of a portfolio is the weighted average of the systematic risks of all its…
Q: You choose to invest your $3,435 income tax refund check (rather than spend it) in an account…
A: Investment (PV) = $3,435 Interest rate (r) = 6% Period (t) = 30 Years
Q: Q.4[q] Evalinte uhether the follouwing poject is feasible or not Net Cash Floe CRs) 55,000 Year…
A: CF0 = - 55000 CF1 = 15000 CF2 = 20000 CF3 = 25000 CF4 = 20000 CF5 = 30000 r = 10% n = 5 years
Q: Use the following to answer questions 4 – 7 (Round answers to the nearest dollar) TR issues 6.0%,…
A: As per Bartleby guidelines,If a question with multiple sub-parts are posted, first 3 sub-parts will…
Q: sports clotnes, is considering adding a line of skirts and jackets. The production would take place…
A: Internal rate of return refers to the discounting rate which makes the discounted present value of…
Q: Problem 14-44 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4) Colonial…
A: Answer - Working note- 1. Calculation of NOPAT (net operating profit after tax) : Statement of…
Q: Dome Metals has credit sales of $450,000 yearly with credit terms of net 45 days, which is also the…
A: Decrease in accounts receivable = Average accounts receivable without discount- Average accounts…
Q: tirement saving at the end of December of her first year of working, and her retirement saving will…
A: There is need of proper planning for retirement and if you start early than you will have sufficient…
Q: The stock of Alpha Tool sells for $81.20 per share. Its current dividend rate, D0, is $3 per share.…
A: Stock valuation The dividend discount model is a method of valuing a stock by discounting expected…
Q: Consider a bond with a coupon rate of 8% and a yield to maturity of 5%, will this bond sell for…
A: Current Market price of the bond is calculated using Financial Calculator Assuming, Face value of…
Q: How much must Riley have in the account for Scott to receive the $220 payments for 5 years? If Riley…
A: A stream of equal cash flows paid or received periodically is termed as annuity. Annuity is either…
Q: 1. If the bond rate is 2%, will the bond be sold at a premium or a discount? Explain your answer.
A: Bond valuation refers to a method which is used to compute the current value or present value (PV)…
Q: Suppose that you want to create a "college fund" for your newborn child and place $300 in a bank…
A: Answer - Future Value Formula - = P [ (1+i)n - 1] / I Given, P = 300 i = 0.07 n = 20 years…
Q: Assume the corporate discount rate is 10 percent, please offer your recommendations by ranking the…
A: 1) Net Present Value=Sum of the present value of cash inflows-Present value of cash outflows Project…
Q: How long (in years) will it take to quadruple it earns 0.03 compounded semiannually?
A: compound interest formula, which is A = P(1 + r/n)^(nt).
Q: On January 1, 2021, Chong Company had an overdue 10% note payable to AprilBank at P8,000,000 with…
A: Overdue Date 01-01-2021 Principal Amount K 80,00,000.00 Accrued Interest…
Q: For the following alternatives compute the Delta B/C ratio of Alternative D minus Alternative A. Use…
A:
Q: Interest rate risk; a.is lesser for bonds with a longer term as compared to bonds with a shorter…
A: Interest rate risk refers to the possibility of investment losses as a result of a change in…
Q: (9) At the end of 2021 you have computed the value of a deposit of 10000 lei constituted in January…
A: Hi, Thanks for the Question. Since, you asked multiple question, we will answer first question for…
Q: Calculate the Mean value
A: PERT technique refers to the techniques which are used to simplify the scheduling and planning of…
Q: Consider a call option on Stock X. The call expires in 7 months and has a strike price X=$22. The…
A: A call option is an option in which the buyer has the choice but not the obligation to buy the…
Q: In performing a contract of sale of goods, there may be a situation where the seller fails to…
A: A contract for the sale, sales contract, customer orders, or collective bargaining agreement for…
Q: Investment A costs $10000 today and pays back $11500 two years from now. Investment B costs $8000…
A: Given: Year Amount Amount 0 -$10,000 -$8,000 1 $4,500 2 $11,500 $4,500
Q: Shane buys a 14-year, $150,500, zero-coupon bond with an annual YTM of 4.32%. If he sells the bond…
A: A Bond refers to an instrument that represents the loan being made by the investor to the company…
Q: A loan was made 3 years and 8 months ago at 7.5% simple interest. The principal amount of the loan…
A: Here, Simple interest = 7.5% Time = 3 years and 8 months Interest amount = P620 To Find: 1. Discount…
Q: What is the annual operation and maintenance costs of owning this vehicle?
A: Time value of money (TVM) is used to measure the value of money at different point of time in the…
Q: 18. Given the information below, which bond(s) will be issued at a discount? Bond 1 Bond 2|Bond 3…
A: 18. Bond 1, and Bond 2 are issued at discount.
Q: Month: April (30 days), previous month s Balahce: $270 Use the average daily balance method to…
A: Credit card finance charge: Any fee related to borrowing money and repaying it over time is referred…
Q: You would like to purchase a Treasury bill that has a $10,000 face value and is 68 days trom…
A: As per Bartleby guidelines, since you have posted multiple questions, first 1 question will be…
Q: port is planning to construct a Tennis Sport Arena on which has 50 courts to be used at any point of…
A: Importance The importance of capital budgeting is that it promotes accountability and…
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Premium for Financial Risk Ethier Enterprise has an unlevered beta of 1.0. Ethier is Financed with 50% debt and has a levered beta of 1.6. If the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier’s shareholders require to be compensated for financial risk?Liu Industries is a highly levered firm. Suppose there is a large probability that Liu will default on its debt. The value of Lius operations is 4 million. The firms debt consists of 1-year, zero coupon bonds with a face value of 2 million. Lius volatility, , is 0.60, and the risk-free rate rRF is 6%. Because Lius debt is risky, its equity is like a call option and can be valued with the Black-Scholes Option Pricing Model (OPM). (See Chapter 8 for details of the OPM.) (1) What are the values of Lius stock and debt? What is the yield on the debt? (2) What are the values of Lius stock and debt for volatilities of 0.40 and 0.80? What are yields on the debt? (3) What incentives might the manager of Liu have if she understands the relationship between equity value and volatility? What might debtholders do in response?Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of Ls operations is 4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of 2 million. Finally, assume that Ls volatility, , is 0.60 and that the risk-free rate rRF is 6%.
- Ethier Enterprise has an unlevered beta of 0.5. Ethier is financed with 25% debt and has a levered beta of 0.6. If the risk free rate is 3.5% and the market risk premium is 5%, how much is the additional premium that Ethier's shareholders require to be compensated for financial risk? Round your answer to one decimal place.Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50%debt and has a levered beta of 1.6. If the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier’sshareholders require to be compensated for financial risk?If the financial Manager of Evergreen wants to decrease its cost of capital by adding more debt to its capital structure and arrive at a debt-equity ratio of 0.60. If its debt is in the form of a 6% semiannual bond issue outstanding with 15 years to maturity. The bond currently sells for 95% of its face value of $1000. On the other hand, suppose the risk-free rate is 3% and the market portfolio has an expected return of 9% and the company has a beta of 2. If the tax rate is 40%. Question 1 Calculate the company,s after-tax cost of debt. Question 2 Calculate the company,s cost of equity. Question 3 What would be the company’s overall cost of capital (WACC) at the targeted capital structure of debt equity ratio of 0.60? Question 4 If the company achieves this new cost of capital, would your investment decision change regarding the previous two investment opportunities? Explain your answer.
- Currently, Bloom Flowers Inc. has a capital structure consisting of20% debt and 80% equity. Bloom's debt currently has an 8% yield to maturity. The risk-free rate (rgr) is 5%, and the market risk premium (ry ~ rer) is 6%. Using the CAPM, Bloom estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate.a. Whatis Bloom's current WACC?b. What is the current beta on Bloom's common stock?c. What would Bloom’s beta be if the company had no debt in its capital structure? (That is, what is Bloom’s unlevered beta, by?)Bloom’s financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company’s bonds would rise to 9.5%. The proposed change will have no effect on the company’s tax rate.d. What would be the company’s new cost of equily if it adopted the proposed change in capital structure?e. What would be the company’s new WACC if it adopted the proposed change…Rolex, Inc. has equity with a market value of $20 million and debt with a market value of $10million. Assume the firm has no default risk and can borrow at the risk-free interest rate. Therisk-free interest rate is 5 percent per year, and the expected return on the market portfolio is11 percent. The beta of the company's equity is 1.2. The tax rate is 20%. What is the cost ofcapital for an otherwise identical all-equity firm? handwrite pleaseU.S. Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 10%, and its tax rate is 45%. It currently has a levered beta of 1.15. The risk-free rate is 2.5%, and the risk premium on the market is 7%. U.S. Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm’s level of debt will cause its before-tax cost of debt to increase to 12%. Use the Hamada equation to unlever and relever the beta for the new level of debt. What will the firm’s weighted average cost of capital (WACC) be if it makes this change in its capital structure? (Hint: Do not round intermediate calculations.) The optimal capital structure is the one that the WACC and the firm’s stock price. Higher debt levels the firm’s risk. Consequently, higher levels of debt cause the firm’s cost of equity to .
- Rolex, Inc. has equity with a market value of $20 million and debt with a market value of $10million. Assume the firm has no default risk and can borrow at the risk-free interest rate. Therisk-free interest rate is 5 percent per year, and the expected return on the market portfolio is11 percent. The beta of the company's equity is 1.2. The tax rate is 20%. What is the cost ofcapital for an otherwise identical all-equity firm?ABC, Inc. has equity beta of 1.75 with total assets financed with 80% of equity. The expected excess return on the market is 7 percent, and the risk-free rate is 3 percent. The firm is considering cutting total equity to 60% of total value. What would the cost of equity be if the firm meets its target?The company you work for wants you to estimate the company’s WACC; but before you do so, you need to estimate the cost of debt and equity. You have obtained the following info. 1) the firms non-callable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000 and a market price of $1,225.00. 2) thecompany’s tax rate is 40%. 3) the risk-free rate is 4.50%, the market risk premium 5.50%, and the stocks betta is 1.20. 4) the target capital structure consists of 35% debt and the balance common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. Calculate the company’s cost of retained earnings using the CAPM approach.