Please show work 1. You are considering buying equity in a firm. If you purchase the...
1. You are considering buying a lottery which will give you two payments, one payment for one year later and the other for two years later. Assume that the lottery pays you one year later either $9,000 with the probability of 2/3 or $3,000 with the probability of 1/3, and two years later either $9,000 with the probability of 1/3 or $3,000 with the probability of 2/3. Then what would be the fair price of the lottery? (How much are...
You have $1,000 to invest and are considering buying some combination of the shares of two companies, Donkey Inc and Elephant Inc. Shares of Donkey Inc will pay a 10 percent return if the Democrats are elected, an event you believe to have a 60 percent probability; otherwise the shares pay a zero return. Shares of Elephant Inc will pay 8 percent if the Republicans are elected (a 40 percent probability), zero otherwise. Either the Democrats or the Republicans will...
Your firm is buying SmallCo. After purchasing SmallCo, you will be able to invest in a project with an upfront cost of $37 million, which pays out $6 million after taxes per year for 7 years. Both your firm and SmallCo are all equity, and your unlevered cost of equity will be 0.11 after the merger. If you have to offer SmallCo's shareholders a $10 million premium to get them to accept the deal, what is the NPV of this...
Bond Valuation Assume that you are considering the purchase of a 20-year, non- callable bond with an annual coupon rate of 9.5%. The bond has a face value of $1,000, and it makes semiannual interest payments. If you require an 8.4% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? Yield to Maturity Radoski Corporation's bonds make an annual coupon interest payment of 7.35%. The bonds have a...
D Question 4 1 pts Your firm is buying SmallCo. After purchasing SmallCo, you will be able to invest in a project with an upfront cost of $37 million, which pays out $6 million after taxes per year for 7 years. Both your firm and SmallCo are all equity, and your unlevered cost of equity will be 0.11 after the merger. If you have to offer SmallCo's shareholders a $10 million premium to get them to accept the deal, what...
Your firm is buying SmallCo. After purchasing SmallCo, you will be able to invest in a project with an upfront cost of $35 million, which pays out $5 million after taxes per year for 28 years. Both your firm and SmallCo are all equity, and your unlevered cost of equity will be 0.13 after the merger. If you have to offer SmallCo's shareholders a $13 million premium to get them to accept the deal, what is the NPV of this...
Your firm is buying SmallCo. After purchasing SmallCo, you will be able to invest in a project with an upfront cost of $10 million, which pays out $4 million after taxes per year for 35 years. Both your firm and SmallCo are all equity, and your unlevered cost of equity will be 0.08 after the merger. If you have to offer SmallCo's shareholders a $13 million premium to get them to accept the deal, what is the NPV of this...
You have $1,500 to invest and are considering buying some combination of the shares of two companies, DonkeyInc and ElephantInc. Shares of DonkeyInc will pay a return of 12 percent if the Democrats are elected, an event you believe to have a 25 percent probability; otherwise the shares pay a zero return. Shares of ElephantInc will pay 10 percent if the Republicans are elected (a probability of 75 percent), zero otherwise. Either the Democrats or the Republicans will be elected....
you are considering the purchase of an investment that would pay you $5,000 per year for years 1-5, $3,000 per year for years 6-8 and $2,000 per year for years 9 and 10. if you require a 17.7 percent rate of return, and the cash flows occur at the end of each year then what is the most you would be willing to pay for this investment?
You are considering the purchase of an investment that would pay you $8,000 per year for Years 1-5, $4,000 per year for Years 6-8, and $3,000 per year for Years 9 and 10. If you require a 15 percent rate of return, and the cash flows occur at the end of each year, then what is the maximum amount you should be willing to pay for this investment?