Questions from Corporate Finance

Q: General Modems has five-year warrants that currently trade in the

General Modems has five-year warrants that currently trade in the open market. Each warrant gives its owner the right to purchase one share of common stock for an exercise price of $55. a. Suppose the...

Q: Why do companies issue options to executives if they cost the company

Why do companies issue options to executives if they cost the company more than they are worth to the executive? Why not just give cash and split the difference? Wouldn’t that make both the company an...

Q: Howell Petroleum is considering a new project that complements its existing business

Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.9 million. The marketing department predicts that sales related to t...

Q: You are considering investing in a company that cultivates abalone for sale

You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information: The discount rate for the company is 15 percent, the initial investme...

Q: You’ve observed the following returns on SkyNet Data Corporation’s stock over the

You’ve observed the following returns on SkyNet Data Corporation’s stock over the past five years: 21 percent, 17 percent, 26 percent, 27 percent, and 4 percent. a. What was the arithmetic average ret...

Q: Consider the following information: / a.

Consider the following information: a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio? b. What is the variance of this portf...

Q: T-bills currently yield 3.9 percent. Stock in

T-bills currently yield 3.9 percent. Stock in Nina Manufacturing is currently selling for $63 per share. There is no possibility that the stock will be worth less than $61 per share in one year. a. Wh...

Q: Assume that the following market model adequately describes the return-generating

Assume that the following market model adequately describes the return-generating behavior of risky assets: Here: Rit = The return on the ith asset at Time t. RMt = The return on a portfolio containin...

Q: In the previous problem, suppose the company’s stock has a beta

In the previous problem, suppose the company’s stock has a beta of 1.15. The risk-free rate is 3.7 percent, and the market risk premium is 7 percent. Assume that the overall cost of debt is the weight...

Q: ABC Co. and XYZ Co. are identical firms in all

ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $640,000 in stock. XYZ uses both stock and perpetual debt; its stock is wort...