Questions from Corporate Finance

Q: We are evaluating a project that costs $588,000,

We are evaluating a project that costs $588,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected a...

Q: Cost of Capital In a world of corporate taxes only, show

Cost of Capital In a world of corporate taxes only, show that the R WACC can be written as R WACC = R0 x [1 - tC (B/V )].

Q: Pricing Model Ken is interested in buying a European call option written

Pricing Model Ken is interested in buying a European call option written on Southeastern Airlines, Inc., a non-dividend-paying common stock, with a strike price of $65 and one year until expiration. C...

Q: Consider two streams of cash flows, A and B. Stream

Consider two streams of cash flows, A and B. Stream A’s first cash flow is $11,600 and is received three years from today. Future cash flows in Stream A grow by 4 percent in perpetuity. Stream B’s fir...

Q: In the previous problem, what is the probability that the return

In the previous problem, what is the probability that the return is less than 2100 percent? (Think.) What are the implications for the distribution of returns?

Q: Assume that markets are efficient. During a trading day American Golf

Assume that markets are efficient. During a trading day American Golf, Inc., announces that it has lost a contract for a large golfing project that, prior to the news, it was widely believed to have s...

Q: Ramsay Corp. currently has an EPS of $3.10

Ramsay Corp. currently has an EPS of $3.10, and the bench-mark PE for the company is 21. Earnings are expected to grow at 6 percent per year. a. What is your estimate of the current stock price? b. W...

Q: FFDP Corp. has yearly sales of $42 million and costs

FFDP Corp. has yearly sales of $42 million and costs of $13 million. The company’s balance sheet shows debt of $64 million and cash of $21 million. There are 1,750,000 shares outstanding and the indus...

Q: In Problem 26, suppose you’re confident about your own projections,

In Problem 26, suppose you’re confident about your own projections, but you’re a little unsure about Detroit’s actual machine screw requirements. What is the sensitivity of the project OCF to changes...

Q: Tesla Corporation needs to raise funds to finance a plant expansion,

Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds to raise the money. The required return on the bonds will be 5.4 percent. a....