Questions from Corporate Finance

Q: Och, Inc., is considering a project that will result in

Och, Inc., is considering a project that will result in initial aftertax cash savings of $2.9 million at the end of the first year, and these savings will grow at a rate of 4 percent per year indefini...

Q: Levered, Inc., and Unlevered, Inc., are identical in

Levered, Inc., and Unlevered, Inc., are identical in every way except their capital structures. Each company expects to earn $23 million before interest per year in perpetuity, with each company distr...

Q: Mojito Mint Company has a debt–equity ratio of .35

Mojito Mint Company has a debt–equity ratio of .35. The required return on the company’s unlevered equity is 12.8 percent, and the pretax cost of the firm’s debt is 6.5 percent. Sales revenue for the...

Q: The Sharpe Co. just paid a dividend of $1.

The Sharpe Co. just paid a dividend of $1.60 per share of stock. Its target payout ratio is 40 percent. The company expects to have earnings per share of $5.10 one year from now. a. If the adjustment...

Q: Show that the value of a right can be written as:

Show that the value of a right can be written as: where PRO, PS, and PX stand for the “rights-on” price, the subscription price, and the ex-rights price, respecti...

Q: Automobiles are often leased, and there are several terms unique to

Automobiles are often leased, and there are several terms unique to auto leases. Suppose you are considering leasing a car. The price you and the dealer agree on for the car is $32,000. This is the ba...

Q: Suppose stock returns can be explained by the following three-factor

Suppose stock returns can be explained by the following three-factor model: Assume there is no firm-specific risk. The information for each stock is presented here: The risk premiums for the factor...

Q: A stock is currently priced at $84. The stock will

A stock is currently priced at $84. The stock will either increase or decrease by 17 percent over the next year. There is a call option on the stock with a strike price of $80 and one year until expir...

Q: Omega Airline’s capital structure consists of 2.7 million shares of

Omega Airline’s capital structure consists of 2.7 million shares of common stock and zero coupon bonds with a face value of $18 million that mature in six months. The firm just announced that it will...

Q: Sparkling Water, Inc., expects to sell 2.7 million

Sparkling Water, Inc., expects to sell 2.7 million bottles of drinking water each year in perpetuity. This year each bottle will sell for $1.35 in real terms and will cost $.85 in real terms. Sales in...