Questions from Corporate Finance

Q: MVP, Inc., has produced rodeo supplies for over 20 years

MVP, Inc., has produced rodeo supplies for over 20 years. The company currently has a debt–equity ratio of 50 percent and is in the 40 percent tax bracket. The required return on the firm’s levered eq...

Q: An asset costs $550,000 and will be depreciated in

An asset costs $550,000 and will be depreciated in a straight-line manner over its three-year life. It will have no salvage value. The corporate tax rate is 34 percent, and the appropriate interest ra...

Q: An insurance policy is considered analogous to an option. From the

An insurance policy is considered analogous to an option. From the policyholder’s point of view, what type of option is an insurance policy? Why?

Q: The capital structure of Ricketti Enterprises, Inc., consists of 20

The capital structure of Ricketti Enterprises, Inc., consists of 20 million shares of common stock and 1.5 million warrants. Each warrant gives its owner the right to purchase one share of common stoc...

Q: For the following scenarios, describe a hedging strategy using futures contracts

For the following scenarios, describe a hedging strategy using futures contracts that might be considered. a. A public utility is concerned about rising costs. b. A candy manufacturer is concerned abo...

Q: Blue Steel Community Bank has the following market value balance sheet:

Blue Steel Community Bank has the following market value balance sheet: a. What is the duration of the assets? b. What is the duration of the liabilities? c. Is the bank immune to interest rate risk?...

Q: The forward price (F) of a contract on an asset

The forward price (F) of a contract on an asset with neither carrying costs nor convenience yield is the current spot price of the asset (S0) multiplied by 1, plus the appropriate interest rate betwee...

Q: Wildcat, Inc., has estimated sales (in millions) for

Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows: Sales for the first quarter of the year after this one are projected at $120 million. Accounts receivable at th...

Q: Neon Corporation’s stock returns have a covariance with the market portfolio of

Neon Corporation’s stock returns have a covariance with the market portfolio of .0415. The standard deviation of the returns on the market portfolio is 20 percent, and the expected market risk premium...

Q: Wolfson Corporation has decided to purchase a new machine that costs $

Wolfson Corporation has decided to purchase a new machine that costs $3.2 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax ra...