Questions from Corporate Finance

Q: You own a stock portfolio invested 15 percent in Stock Q,

You own a stock portfolio invested 15 percent in Stock Q, 35 percent in Stock R, 30 percent in Stock S, and 20 percent in Stock T. The betas for these four stocks are .75, 1.90, 1.38, and 1.16, respec...

Q: Assume that the returns on individual securities are generated by the following

Assume that the returns on individual securities are generated by the following two-factor model: Here: Rα is the return on Security i at Time t. F1t and F2t are market factors with zero...

Q: Kose, Inc., has a target debt–equity ratio of

Kose, Inc., has a target debt–equity ratio of .45. Its WACC is 9.8 percent, and the tax rate is 35 percent. a. If Kose’s cost of equity is 13 percent, what is its pretax cost of debt? b. If instead yo...

Q: Overnight Publishing Company (OPC) has $2.5 million

Overnight Publishing Company (OPC) has $2.5 million in excess cash. The firm plans to use this cash either to retire all of its outstanding debt or to repurchase equity. The firm’s debt is held by one...

Q: Triad Corporation has established a joint venture with Tobacco Road Construction,

Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll road in North Carolina. The initial investment in paving equipment is $93 million. The equipment...

Q: The Mann Company belongs to a risk class for which the appropriate

The Mann Company belongs to a risk class for which the appropriate discount rate is 10 percent. Mann currently has 240,000 outstanding shares selling at $105 each. The firm is contemplating the declar...

Q: Teardrop, Inc., wishes to expand its facilities. The company

Teardrop, Inc., wishes to expand its facilities. The company currently has 6.8 million shares outstanding and no debt. The stock sells for $65 per share, but the book value per share is $20. Net incom...

Q: The Wildcat Oil Company is trying to decide whether to lease or

The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay...

Q: What are the prices of a call option and a put option

What are the prices of a call option and a put option with the following characteristics?

Q: Suppose you are offered $9,400 today but must make

Suppose you are offered $9,400 today but must make the following payments: a. What is the IRR of this offer? b. If the appropriate discount rate is 10 percent, should you accept this offer? c. If th...