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1. A firm is considering buying another company. The acquisition will increase revenues by...
A company is considering an acquisition of The Company “B”. B has a cost of equity...
A company is considering an acquisition of The Company “B”. B has a cost of equity of 10% and 25% of its financing is in the form debt at 6%. After acquisition, it is estimated that the cash flows and the interest payments for the next three years are as follows: Year 1 Year 2 Year 3 FCF $10 $20 $25 Interest expense 28 24 20.28 The cash flows are then expected to grow at a...
1. (15 points) David is considering buying two bonds in order to service a payment due...
1. (15 points) David is considering buying two bonds in order to service a payment due in 5 years. Bond A is a 5 year bond with 4% annual coupon selling at par (100%). Bond B is a 3 year zero coupon bond (i.e. bond with no coupons and selling at discount) yielding 3.5% (annual compounding). a. Should the reinvestment rate of the cash flows received is 4.5% throughout 5 years, which bond is a better 5 year investment? Show...
orrect Question 8 0/1 pts You are considering buying a bond with a $1000 face value....
orrect Question 8 0/1 pts You are considering buying a bond with a $1000 face value. The coupon rate is 6%, paid semi-annually. The bond will mature in 10 years. The YTM for similar bonds in the market is 8% (annually). How much will the ANNUAL interest payments be? 560 11 pts Question 9
1) A firm believes it can generate an additional $2,000,000 per year in revenues for the...
1) A firm believes it can generate an additional $2,000,000 per year in revenues for the next 5 years if it purchases a new piece of equipment for $1,000,000. The firm does not expect to be able to sell the new equipment when it is finished using it (after 5 years). Variable costs are expected to be 48% of revenue annually. Assuming the firm uses straight-line depreciation and its marginal tax rate is 25%, what are the incremental annual operating...
Question 22 (0.9 points) Over the next three years, the expected path of 1-year interest rates...
Question 22 (0.9 points) Over the next three years, the expected path of 1-year interest rates is 1, 2, and 1 percent, and the 1-year, 2-year, and 3-year term premia are 0, 0.2, and 0.5 percent, respectively. Using the information, if the expectations theory of the term structure is true, then the current interest rate on 2-year bond must be % (round to one decimal place x.x). Question 23 (0.9 points) Over the next three years, the expected path of...
help with 15, 16, 17 15. Suppose the interest rate (return rate) on a 1-year T-bond...
help with 15, 16, 17
15. Suppose the interest rate (return rate) on a 1-year T-bond is 3.0% and that on a 2-year T-bond is 6.0%. Assuming the pure expectations theory is correct, what is the market's forecast for 1-year rates 1 year from now? 16. Stacker's Corporation's bonds have a 10-year maturity, a 10.00% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 2.00%, based on semiannual compounding. What is the bond's price? 17....
DO LOPJOJ DIO U 1) You are considering buying a 10 year $1000 bond with a...
DO LOPJOJ DIO U 1) You are considering buying a 10 year $1000 bond with a coupon rate of 6% paid annually. If the discount rate is 6%, what is the maximum that you are willing to pay for this bond? How about with discount rate at 12%? And at 3%? When is the bond selling at par? And when it is selling at a premium?
Question 1: Expectations Theory Martha is a great believer in the expectations theory of the term...
Question 1: Expectations Theory Martha is a great believer in the expectations theory of the term structure rates. She thinks that the interest rate for the bond XYZ that matures in three periods must be equal to 7%. Adam, at the same time, is a proponent of the liquidity premium theory. He believes that the correct interest rate for the XYZ is 10%. Find the liquidity premium and expected interest rate for the third year if the expected interest rate...
Your company is considering investing in Project X. Your analysts estimate that this project will increase...
Your company is considering investing in Project X. Your analysts estimate that this project will increase your company’s net cash flows by $96246 in year 1, $141845 in year 2, and $203878 in year 3. For convenience, they treat these cash flows as occurring at the end of the respective years. Your analysts decided that the appropriate discount rate for this project is 7% per year, compounded annually. What is the present value of the cash flows expected from Project...
The real risk-free rate of interest is expected to remain constant at 3% for the foreseeable...
The real risk-free rate of interest is expected to remain constant at 3% for the foreseeable future. However, inflation is expected to increase steadily over the next 30 years, so the Treasury yield curve has an upward slope. Assume that the pure expectations theory holds. You are also considering two corporate bonds, one with a 3-year maturity and one with a 5-year maturity. Both have the same default and liquidity risks. Given these assumptions, which of these statements is CORRECT?...
1. (15 points) David is considering buying two bonds in order to service a payment due in 5 years. Bond A is a 5 year bond with 4% annual coupon selling at par (100%). Bond B is a 3 year zero coupon bond (i.e. bond with no coupons and selling at discount) yielding 3.5% (annual compounding). a. Should the reinvestment rate of the cash flows received is 4.5% throughout 5 years, which bond is a better 5 year investment? Show...
orrect Question 8 0/1 pts You are considering buying a bond with a $1000 face value. The coupon rate is 6%, paid semi-annually. The bond will mature in 10 years. The YTM for similar bonds in the market is 8% (annually). How much will the ANNUAL interest payments be? 560 11 pts Question 9
Question 22 (0.9 points) Over the next three years, the expected path of 1-year interest rates is 1, 2, and 1 percent, and the 1-year, 2-year, and 3-year term premia are 0, 0.2, and 0.5 percent, respectively. Using the information, if the expectations theory of the term structure is true, then the current interest rate on 2-year bond must be % (round to one decimal place x.x). Question 23 (0.9 points) Over the next three years, the expected path of...
help with 15, 16, 17
15. Suppose the interest rate (return rate) on a 1-year T-bond is 3.0% and that on a 2-year T-bond is 6.0%. Assuming the pure expectations theory is correct, what is the market's forecast for 1-year rates 1 year from now? 16. Stacker's Corporation's bonds have a 10-year maturity, a 10.00% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 2.00%, based on semiannual compounding. What is the bond's price? 17....
DO LOPJOJ DIO U 1) You are considering buying a 10 year $1000 bond with a coupon rate of 6% paid annually. If the discount rate is 6%, what is the maximum that you are willing to pay for this bond? How about with discount rate at 12%? And at 3%? When is the bond selling at par? And when it is selling at a premium?
Question 1: Expectations Theory Martha is a great believer in the expectations theory of the term structure rates. She thinks that the interest rate for the bond XYZ that matures in three periods must be equal to 7%. Adam, at the same time, is a proponent of the liquidity premium theory. He believes that the correct interest rate for the XYZ is 10%. Find the liquidity premium and expected interest rate for the third year if the expected interest rate...
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