Questions from Corporate Finance

Q: A firm is considering an investment in a new machine with a

A firm is considering an investment in a new machine with a price of $15.6 million to replace its existing machine. The current machine has a book value of $5.4 million and a market value of $4.1 mill...

Q: Young screenwriter Carl Draper has just finished his first script. It

Young screenwriter Carl Draper has just finished his first script. It has action, drama, and humor, and he thinks it will be a blockbuster. He takes the script to every motion picture studio in town a...

Q: RAK Co. wants to issue new 20-year bonds for

RAK Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 6.4 percent coupon bonds on the market that sell for $1,063, make semiannual payments, and m...

Q: A stock has had the following year-end prices and dividends

A stock has had the following year-end prices and dividends: What are the arithmetic and geometric returns for the stock?

Q: Using the CAPM, show that the ratio of the risk premiums

Using the CAPM, show that the ratio of the risk premiums on two assets is equal to the ratio of their betas.

Q: Critically evaluate the following statement: Playing the stock market is like

Critically evaluate the following statement: Playing the stock market is like gambling. Such speculative investing has no social value, other than the pleasure people get from this form of gambling.

Q: Happy Times, Inc., wants to expand its party stores into

Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Par...

Q: Acetate, Inc., has equity with a market value of $

Acetate, Inc., has equity with a market value of $29.5 million and debt with a market value of $8 million. Treasury bills that mature in one year yield 5 percent per year, and the expected return on t...

Q: You own a portfolio that has $2,700 invested in

You own a portfolio that has $2,700 invested in Stock A and $3,800 invested in Stock B. If the expected returns on these stocks are 9.5 percent and 14 percent, respectively, what is the expected retur...

Q: Sunburn Sunscreen has a zero coupon bond issue outstanding with a $

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $20,000 face value that matures in one year. The current market value of the firm’s assets is $21,700. The standard deviation of the r...