Questions from Corporate Finance

Q: Watson, Inc., is an all-equity firm. The

Watson, Inc., is an all-equity firm. The cost of the company’s equity is currently 11.9 percent, and the risk-free rate is 3.5 percent. The company is currently considering a project that will cost $1...

Q: The market value balance sheet for Outbox Manufacturing is shown here.

The market value balance sheet for Outbox Manufacturing is shown here. Outbox has declared a stock dividend of 25 percent. The stock goes ex dividend tomorrow (the chronology for a stock dividend is s...

Q: The Green Hills Co. has just gone public. Under a

The Green Hills Co. has just gone public. Under a firm commitment agreement, Green Hills received $29.96 for each of the 7.5 million shares sold. The initial offering price was $32 per share, and the...

Q: Super Sonics Entertainment is considering buying a machine that costs $480

Super Sonics Entertainment is considering buying a machine that costs $480,000. The machine will be depreciated over five years by the straight-line method and will be worthless at that time. The comp...

Q: Wet for the Summer, Inc., manufactures filters for swimming pools

Wet for the Summer, Inc., manufactures filters for swimming pools. The company is deciding whether to implement a new technology in its pool filters. One year from now the company will know whether th...

Q: Sportime Fitness Center, Inc., issued convertible bonds with a conversion

Sportime Fitness Center, Inc., issued convertible bonds with a conversion price of $49. The bonds are available for immediate conversion. The current price of the company’s common stock is $43 per sha...

Q: Maxwell Software, Inc., has the following mutually exclusive projects.

Maxwell Software, Inc., has the following mutually exclusive projects. a. Suppose the company’s payback period cutoff is two years. Which of these two projects should be chosen? b....

Q: Dog Up! Franks is looking at a new sausage system with

Dog Up! Franks is looking at a new sausage system with an installed cost of $345,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sau...

Q: The manager for a growing firm is considering the launch of a

The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there is a 50 percent chance of success. For $125,000 the manager can conduct a focus...

Q: Suppose you are evaluating a callable, convertible bond. If the

Suppose you are evaluating a callable, convertible bond. If the stock price volatility increases, how will this affect the price of the bond?