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Maturity Risk Premium

Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 5.80%. The real risk-free rate is r* = 2.5%, the default risk premium for Kelly's bonds is DRP = 0.40%, the liquidity premium on Kelly's bonds is LP = 1.3% versus zero on T-bonds, and the inflation premium (IP) is 1.5%. What is the maturity risk premium (MRP) on all 5

Forecasting Risk and Cost-Cutting Proposal

Forecasting Risk - What is forecasting risk? in general, would the degree of forecasting risk be greater for a new product or a cost-cutting proposal? Why? 2. Sensitivity analysis and Scenario analysis- What is the essential difference between sensitivity analysis and scenario analysis? 3.Marginal cash flows - A co-wor

ACCOUNTING PROBLEM (see attachment for word doc)

Part: 1 The Following information was reported by Gap, Inc in its 2006 annual report. 2006 2005 2004 2003 2002 Total assets $8,544 $8,821 $10,048 $10,713 $10,283 (In Millions) Working Capital $2,757 3,297 $ 4,062 $4,156 $2,972 Current ratio 2.2

Fixed cost and Variable cost

1 page Details: Costs can be classified into two categories, fixed and variable costs. These costs behave differently based on the level of sales volumes. Suppose we are running a restaurant and have identified certain costs along with the number of annual units sold of 1000. Item: Raw Materials (cost for hamburge

Amount of Annual Dividend: Example Problem

Suppose you are willing to pay $30 today for a share of stock which you will expect to sell at the end of year one for $32. If you require and annual rate of return of 12%, what must be the amount of the annual dividend which you expect to receive at the end of year one?

Determining Present Value of Cash Flow Stream: Example Problem

Assume that your required rate of return is 12% and you are given the following streams of cash flow: Year Cash Flow 0 $10,000 1 $15,000 2 $15,000 3 $15,000 4 $15,000 5 $20,000 If the payments are made at the end of each period, what is the PV of the cash flow stream?

Estimating given stock's price

Sorenson Corp.'s expected year-end dividend is D1 = $1.50, its required return is rS = 12.00%, its dividend yield is 8.00%, and its growth rate is expected to be constant in the future. What is Sorenson's expected stock price in 7 years, i.e., what is P7?

Kalpert common stock

A security analyst forecasts the dividends of Kalpert Enterprises for the next three years. Her forecast is D1=$1.50, D2=$1.75, and D3=$2.20. She also forecasts a price in three years of $48.50. The rate of return for similar-risk common stock is 14%. What is the value of Kalpert common stock?

Finance, Discount Rate, and Retained Earning

Calculate the cost of Retained Earnings, then the cost of newly issued stock. The flotation cost is 12%, so the net value of the stock is 88% of the market price " Cost of Retained Earnings" " Cost of newly issued stock" Current Price of stock $8.24 Growth Rate 3.00% Last Dividend Paid is $1.20 "Calculate the Disco

Number of Months to Grow an Investment

I am stomped on finding the solution to these problems. Please help me figure out how to solve on my financial calculator. You are considering investing in a bank account that pays a nominal annual rate of 6.5%, compounded monthly. If you invest $3,400 at the end of each month, how many months will it take for your account

Finance Problems

1. Paying a stock dividend ________ the retained earnings account. 1. 1. increases 2. 2. has no effect on 3. 3. reorganizes 4. 4. decreases 2. Firms are usually prohibited by state law from distributing 1. 1. retained earnings as dividends. 2. 2. dividends in a year the firm has a net loss. 3.

Statement of cash flows

The following account balances relate to the stockholders' equity accounts of Gore Corp. at year-end. 2008 2007 Common stock, 10,500 and 10,000 shares, respectively, for 2008 and 2007 $160,000 $140,000 Preferred stock, 5,000 shares 125,000 125,000 Retained earnings 300,000 260,000 A small

Help with Financial Decisions

A company needs about $20-25 million dollars to expand. The following is included for information. It is privately owned and sells proprietary products in the medical field. There has never been the use or need for investment capital from outside sources until now. The prospects for sales are excellent. Please help with deter

Description of Share Price

Question: Baruk Industries has no cash and a debt obligation of $36 million that is now due. The market value of Baruk's assets is $81 million, and the firm has no other liabilities. Assume perfect capital markets. a. Suppose Baruk has 10 million shares outstanding. What is Baruk's current share price? b. How many new

Price of Common Stock Problem

Spear, Inc., has an odd dividend policy. The company has just paid a dividend of $7 per share and has announced that it will increase the dividend by $4 per share for each of the next four years, and then never pay another dividend. If you require an 11 percent return on the company's stock, how much will you pay for a share tod

Using Bond Quotes

Suppose the following bond quotes for IOU Corporation appear in the financial page of today's newspaper. Assume the bond has a face value of $1,000 and current date is April 15, 2007. What is the yield to maturity of the bond? What is the Current yield? What is the yield to maturity on a comparable U.S. Treasury issue? Compan

Analyzing Portfolios

I am trying to understand what formula to use. I want to create a portfolio equally risky as the market, and I have $1,000,000 to invest. So Given the info below, I need to fill the table below; Asset Investment Beta Stock A $200,000 .80 Stock B $250,000 1.30 Stock C

Deer Valley Lodge -Responsibility Center & Financial Control

Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the

Finding APR and APY: Bank Loan Example Problem

A bank loan agreement calls for an interest rate equal to prime rate plus 1%. If prime rate averages 9% and non-interest-earning compensating balances equal to 10% of the loan must be maintained, what are the APR and the APY of the loan assuming annual payments? With the information given, How do I find the APR and APY? It

Benefits of risk management

When considering the benefits of risk management, why would you say that historical data is a benefit of risk management? Have you ever been in a situation within your work environment where historical data would have or did minimize a business risk? Explain.


Han Corp's sales last year were $395,000, and its year-end receivables were $52,500. The firm sells on terms that call for customers to pay 30 days after the purchase, but some delay payment beyond Day 30. On average, how many days late do customers pay? Base your answer on this equation: DSO - Allowed credit period = Average da

Daily Sales Outstanding (DSO)

Faldo Corp sells on terms that allow customers 45 days to pay for merchandise. Its sales last year were $435,000, and its year-end receivables were $60,000. If its DSO is less than the 45-day credit period, then customers are paying on time. Otherwise, they are paying late. By how much are customers paying early or late? Base yo

Portfolio Betas & expected returns

1. You own a stock portfolio invested 25% in stock Q, 20% in stock R, 15% in stock S, and 40% in stock T. The betas for these stocks are .84, 1.17, 1.11, and 1.36 respectively. What is the portfolio beta? 2. (Using CAPM) A stock has a beta of 1.05, the expected return on the market is 11 % and the risk-free rate is 5.2 %.

Consider the Role of the Finance Department

Consider the role of the finance department at On Your Mark. As a division manager, 1. How might the finance department help you to successful complete the duties of your job? 2. What role does a finance department play in valuing business opportunities for future acquisitions? 3. What are the ethical responsibilities of

Fund balances

A governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances reported expenditures of $33,500,000, including capital outlay expenditures of $3,200,000. Capital assets for that government cost $56,000,000, including land of $3000,000. Depreciable assets are amortized over 20 years, on average. The rec

Implied Volatility

3. Using the values of St, K, rf , and T specified below, use your spreadsheet and trial and error (or Solver) to estimate the implied volatility (accurate to four decimal places) of a call with a price of $7.2568. St = $60.00 K = $60.00 rf = 0.02 T = 0.3333 (3 months).

Financial Management

Langston Labs has an overall (composite) WACC of 10%, which reflects the cost of capital for its average asset. Its assets vary widely in risk, and Langston evaluates low-risk projects with a WACC of 8%, average projects at 10%, and high-risk projects at 12%. The company is considering the following projects: Project Ris


5. Your firm currently has $100 million in debt outstanding with a 10% interest rate. The terms of the loan require the firm to repay $25 million of the balance each year. Suppose that the marginal corporate tax rate is 40%, and that the interest tax shields have the same risk as the loan. What is the present value of the in

NPV, IRR and Payback Method

SAC is considering the purchase of new equipment to manufacture specialty spark plugs. The new equipment would allow the firm to manufacture 100,000 additional spark plugs per year and is expected to have a useful life of 5 years and to have no salvage value at that time. SAC will depreciate the equipment using the straigh