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corporate finance 5th edition

Questions and Answers of Corporate Finance 5th Edition

Assume all firms have the same expected dividends. If they have different expected returns, how will their market values and expected returns be related? What about the relation between their
Suppose Microsoft has 8.75 billion shares outstanding and pays a marginal corporate tax rate of 21%. If Microsoft announces that it will pay out $50 billion in cash to investors through a combination
Hartford Mining has 50 million shares that are currently trading for $4 per share and $200 million worth of debt. The debt is risk free and has an interest rate of 5%, and the expected return of
Compute the cost of levered equity (rE) for Home Depot using their current market debt-to-equity ratio and Eq. 14.5. (14.5) Cost of Capital of Levered Equity D TE = TU + (ru - TD) E
Explain how to construct a positive-alpha trading strategy if stocks that have had relatively high returns in the past tend to have positive alphas and stocks that have had relatively low returns in
Begin by analyzing the scenario with $1 billion in new debt. Assuming the firm plans to keep this new debt outstanding forever, determine the present value of the tax shield of the new debt. What
What will Home Depot’s D/E ratio based on book values be after it issues new debt and repurchases stock? What will its market value D/E ratio be?
Restex maintains a debt-equity ratio of 0.85, and has an equity cost of capital of 12% and a debt cost of capital of 7%. Restex’s corporate tax rate is 25%, and its market capitalization is $220
Suppose the following orders are received by an exchange for Cisco stock:Limit Order: Buy 200 shares at $25Limit Order: Sell 200 shares at $26Limit Order: Sell 100 shares at $25.50Limit Order: Buy
Find historical stock prices for each firm from Yahoo! Finance (finance.yahoo.com). Enter your stock symbol, click “Historical Prices” in the left column, and enter the proper date range to cover
For each of the four years of statements, compute the following ratios for each firm:Valuation RatiosPrice-Earnings Ratio (for EPS use Diluted EPS Total)Market-to-Book RatioEnterprise
Obtain industry averages for each firm from Reuters.com (www.reuters.com/finance/stocks). Enter the stock symbol in the field under “Search Stocks,” select the company from the list, and then
Examine the Market-to-Book ratios you calculated for each firm. Which, if any, of the two firms can be considered “growth firms” and which, if any, can be considered “value firms”?
Consider the enterprise value of each firm for each of the four years. How have the values of each firm changed over the time period?
Quisco Systems has 6.5 billion shares outstanding and a share price of $18. Quisco is considering developing a new networking product in house at a cost of $500 million. Alternatively, Quisco can
You have an investment opportunity in Japan. It requires an investment of $1 million today and will produce a cash flow of ¥114 million in one year with no risk. Suppose the risk-free interest rate
Determine the interest rate she is currently earning on her inheritance by going to the U.S. Treasury Department Web site (treasury.gov) and selecting “Data” on the main menu. Then select
Create a timeline in Excel for her current situation, as well as the certification program and MBA degree options, using the following assumptions:. Salaries for the year are paid only once, at the
Calculate the future value of $2000 ina. Five years at an interest rate of 5% per year.b. Ten years at an interest rate of 5% per year.c. Five years at an interest rate of 10% per year.d. Why is the
Calculate the present value of the salary differential for completing the certification program. Subtract the cost of the program to get the NPV of undertaking the certification program.
What is the present value of $10,000 receiveda. Twelve years from today when the interest rate is 4% per year?b. Twenty years from today when the interest rate is 8% per year?c. Six years from today
Calculate the present value of the salary differential for completing the MBA degree. Calculate the present value of the cost of the MBA program. Based on your calculations, determine the NPV of
Consider the following alternatives:i. $100 received in one yearii. $200 received in five yearsiii. $300 received in ten yearsa. Rank the alternatives from most valuable to least valuable if the
Suppose you invest $1000 in an account paying 8% interest per year.What is the balance in the account after 3 years? How much of this balance corresponds to “interest on interest”?What is the
Suppose you receive $100 at the end of each year for the next three years.If the interest rate is 8%, what is the present value of these cash flows?What is the future value in three years of the
You have a loan outstanding. It requires making three annual payments at the end of the next three years of $1000 each. Your bank has offered to restructure the loan so that instead of making the
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $4000 at the end of each of the next three years. The opportunity requires an
What is the present value of $1000 paid at the end of each of the next 100 years if the interest rate is 7% per year?
You would like to buy the house and take the mortgage described in Problem 37. You can afford to pay only $23,500 per year. The bank agrees to allow you to pay this amount each year, yet still borrow
Download the latest financial audit by going to the Florida State Auditor General’s Web site: www.myflorida.com/audgen/ and clicking on REPORTS and selecting REPORTS ISSUED BY THE AUDITOR GENERAL.
Which do you prefer: a bank account that pays 5% per year (EAR) for three years orAn account that pays 2½% every six months for three years?An account that pays 7½% every 18 months for three
In the “Entity Type” drop down box, select “State Agencies and Related Entities.” Choose the latest year the report is available. (In 2017, it was called “Florida Retirement System Pension
Because these pension payments are a legal obligation for the state, you assess their risk to be similar to other state debt, and therefore the cost of capital should be similar to Florida’s
Using these yields to approximate the cost of capital, estimate the present value of Florida’s pension liabilities.
Calculate the level of underfunding by finding the value of the pension fund’s assets (in 2017, this information was on here of the report) and subtracting the present value of the liabilities.
Compare your estimate of the actual level of underfunding to what the report calculates using GAAP accounting. (In 2017, this information was on here of the report.) Explain the difference between
Your mortgage has 25 years left, and has an APR of 7.625% with monthly payments of $1449.What is the outstanding balance?Suppose you cannot make the mortgage payment and you are in danger of losing
Oppenheimer Bank is offering a 30-year mortgage with an APR of 5.25% based on monthly compounding. With this mortgage your monthly payments would be $2,000 per month. In addition, Oppenheimer Bank
Suppose the current one-year interest rate is 6%. One year from now, you believe the economy will start to slow and the one-year interest rate will fall to 5%. In two years, you expect the economy to
Suppose you have outstanding debt with an 8% interest rate that can be repaid any time, and the interest rate on U.S. Treasuries is only 5%. You plan to repay your debt using any cash that you
A 30-year bond with a face value of $1000 has a coupon rate of 5.5%, with semiannual payments.a. What is the coupon payment for this bond?b. Draw the cash flows for the bond on a timeline.
Begin by finding the current U.S. Treasury yield curve. At the Treasury Web site (www.treas.gov), search using the term “yield curve” and select “Daily Treasury Yield Curve Rates.” Copy the
Find the current yields for bonds issued by Microsoft Corporation. Go to finra-markets.morningstar.com/BondCenter/. Using the Search tab, choose “Corporate” for the bond type and enter
For Problem assume zero-coupon yields on default-free securities are as summarized in the following table:What is the price of a five-year, zero-coupon, default-free security with a face value of
Using the yield curves you have found, estimate the value of an annuity that pays $1000 every 5 years over the next 25 years (i.e., five total payments) paid by either the U.S. Treasury, Microsoft,
For Problem assume zero-coupon yields on default-free securities are as summarized in the following table:What is the price of a three-year, default-free security with a face value of $1000 and an
What does it mean for a country to “inflate away” its debt? Why might this be costly for investors even if the country does not default?
Compute the incremental cash flows of the lower rate loan; that is, determine how much more you will pay in fees, and how much you will save on your monthly payment.
What is the payback period of the lower rate loan? That is, how many years of lower monthly payments will it take to save an amount equal to the higher fees?
You are considering opening a new plant. The plant will cost $100 million upfront. After that, it is expected to produce profits of $30 million at the end of every year. The cash flows are expected
What is the IRR associated with paying the higher fees for the lower rate loan? (Again, the RATE function can be used.)
Compute the final payment you will need to make to pay off each loan at the end of 5 years.
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500 million, and would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70

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