Question: Which do you prefer: a bank account

> How many IRRs are there in part (a) of Problem 9? Does the IRR rule give the right answer in this case? Information from Problem 9: Bill Clinton reportedly was paid $10 million to write his book My Life. The book took three years to write. In the time h

> Your firm is issuing $100 million in straight bonds at par with a coupon rate of 6% and paying total fees of 3%. What is the net amount of funds that the debt issue will provide for your firm?

> You are finalizing a bank loan for $200,000 for your small business and the closing fees payable to the bank are 2% of the loan. After paying the fees, what will be the net amount of funds from the loan available to your business?

> You are the CFO of RealNetworks on July 1, 2008. The company’s stock price is $6.74 and its convertible debt (as shown in Table 15.7) is now callable. a. What is the value of the shares the bondholders would receive per $1000 bond if th

> A $1000 face value bond has a conversion ratio of 40. You estimate the transaction costs of conversion to be 3% of the face value of the bond. What price must the stock reach in order for you to convert?

> You own a bond with a face value of $10,000 and a conversion ratio of 450. What is the conversion price?

> Roundtree Software is going public using an auction IPO. The firm has received the following bids: Assuming Roundtree would like to sell 1.8 million shares in its IPO, what will be the winning auction offer price? Price ($) Number of Shares 14.00 100

> Assuming that you own only the Series A preferred stock in Problem 4 (and that each share of all series of preferred stock is convertible into one share of common stock), what percentage of the firm do you own after the last funding round? Data from Pro

> Based on the information in Problem 4 (and that each share of all series of preferred stock is convertible into one share of common stock), what fractions of the firm do the Series B, C, and D investors each own in your firm? In Problem 4 Round Price

> Three years ago, you founded your own company. You invested $100,000 of your own money and received 5 million shares of Series A preferred stock. Your company has since been through three additional rounds of financing. a. What is the pre-money valuation

> Your start-up company needs capital. Right now, you own 100% of the firm with 10 million shares. You have received two offers from venture capitalists. The first offers to invest $3 million for 1 million new shares. The second offers $2 million for 500,0

> Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars) (see MyFinanceLab for

> Starware Software was founded last year to develop software for gaming applications. The founder initially invested $800,000 and received 8 million shares of stock. Starware now needs to raise a second round of capital, and it has identified a venture ca

> You have started a company and are in luck—a venture capitalist has offered to invest. You own 100% of the company with 5 million shares. The VC offers $1 million for 800,000 new shares. a. What is the implied price per share? b. What is the post-money v

> MacKenzie Corporation currently has 10 million shares of stock outstanding at a price of $40 per share. The company would like to raise money and has announced rights issue. Every existing shareholder will be sent one right per share of stock that he or

> Foster Enterprises’ stock is trading for $50 per share and there are currently 10 million shares outstanding. It would like to raise $100 million. If its underwriter charges 5% of gross proceeds, a. How many shares must it sell? b. If it expects the stoc

> On January 20, Metropolitan, Inc., sold 8 million shares of stock in an SEO. The market price of Metropolitan at the time was $42.50 per share. Of the 8 million shares sold, 5 million shares were primary shares being sold by the company, and the remainin

> The firm you founded currently has 12 million shares, of which you own 7 million. You are considering an IPO where you would sell 2 million shares for $20 each. What is the maximum number of secondary shares you could sell and still retain more than 50%

> The firm you founded currently has 12 million shares, of which you own 7 million. You are considering an IPO where you would sell 2 million shares for $20 each. If all of the shares sold are from your holdings, how much will the firm raise? What will you

> The firm you founded currently has 12 million shares, of which you own 7 million. You are considering an IPO where you would sell 2 million shares for $20 each. If all of the shares sold are primary shares, how much will the firm raise? What will your pe

> Your firm is selling 3 million shares in an IPO. You are targeting an offer price of $17.25 per share. Your underwriters have proposed a spread of 7%, but you would like to lower it to 5%. However, you are concerned that if you do so, they will argue for

> Chen Brothers, Inc., sold 4 million shares in its IPO, at a price of $18.50 per share. Management negotiated a fee (the underwriting spread) of 7% on this transaction. What was the dollar cost of this fee?

> In the HomeNet example from the chapter, its receivables are 15% of sales and its payables are 15% of COGS. Forecast the required investment in net working capital for HomeNet assuming that sales and cost of goods sold (COGS) will be (see MyFinanceLab fo

> If Margoles Publishing from Problem 11 paid an underwriting spread of 7% for its IPO and sold 10 million shares, what was the total cost (exclusive of underpricing) to it of going public?

> Margoles Publishing recently completed its IPO. The stock was offered at a price of $14 per share. On the first day of trading, the stock closed at $19 per share. a. What was the initial return on Margoles? b. Who benefited from this underpricing? Who lo

> Your investment bankers price your IPO at $15 per share for 10 million shares. If the price at the end of the first day of trading is $17 per share, a. What was the percentage underpricing? b. How much money did the firm miss out on due to underpricing?

> Three years ago, you founded Outdoor Recreation, Inc., a retailer specializing in the sale of equipment and clothing for recreational activities such as camping, skiing, and hiking. So far, your company has gone through three funding rounds: It is now 20

> If Roundtree from Problem 7 decides to issue an extra 500,000 shares (for a total of 2.3 million shares), how much total money will it raise? In Problem 7: Roundtree Software is going public using an auction IPO. The firm has received the following bid

> Slow ’n Steady, Inc., has a stock price of $30, will pay a dividend next year of $3, and has expected dividend growth of 1% per year. What is your estimate of Slow ’n Steady’s cost of equity capital?

> HighGrowth Company has a stock price of $20. The firm will pay a dividend next year of $1, and its dividend is expected to grow at a rate of 4% per year thereafter. What is your estimate of HighGrowth’s cost of equity capital?

> Steady Company’s stock has a beta of 0.20. If the risk-free rate is 6% and the market risk premium is 7%, what is an estimate of Steady Company’s cost of equity?

> Dewyco has preferred stock trading at $50 per share. The next preferred dividend of $4 is due in one year. What is Dewyco’s cost of capital for preferred stock?

> Laurel, Inc., has debt outstanding with a coupon rate of 6% and a yield to maturity of 7%. Its tax rate is 35%. What is Laurel’s effective (after-tax) cost of debt?

> OpenSeas, Inc., is evaluating the purchase of a new cruise ship. The ship would cost $500 million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70 million and its cost of capital is 12%. a. Prepare an

> Avicorp has a $10 million debt issue outstanding, with a 6% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 95% of par value. a. What is Avicorp’s pre-tax

> Consider a simple firm that has the following market-value balance sheet: Next year, there are two possible values for its assets, each equally likely: $1200 and $960. Its debt will be due with 5% interest. Because all of the cash flows from the assets m

> Book Co. has 1 million shares of common equity with a par (book) value of $1, retained earnings of $30 million, and its shares have a market value of $50 per share. It also has debt with a par value of $20 million that is trading at 101% of par. a. What

> Andyco, Inc., has the following balance sheet and an equity market-to-book ratio of 1.5. Assuming the market value of debt equals its book value, what weights should it use for its WACC calculation? Assets Liabilities and Equity 1000 Debt 400 Equity

> MV Corporation has debt with market value of $100 million, common equity with a book value of $100 million, and preferred stock worth $20 million outstanding. Its common equity trades at $50 per share, and the firm has 6 million shares outstanding. What

> You are planning to issue debt to finance a new project. The project will require $20 million in financing and you estimate its NPV to be $15 million. The issue costs for the debt will be 3% of face value. Taking into account the costs of external financ

> RiverRocks realizes that it will have to raise the financing for the acquisition of Raft Adventures by issuing new debt and equity. The firm estimates that the direct issuing costs will come to $7 million. How should it account for these costs in evaluat

> Your company has two divisions: One division sells software and the other division sells computers through a direct sales channel, primarily taking orders over the Internet. You have decided that Dell Computer is very similar to your computer division, i

> CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor. Suppose the firm faces a tax rate of 35% and collects the following information. If it plans to finance 11% of the new liquor-focused division with debt and the r

> RiverRocks’ purchase of Raft Adventures (from Problem 18) will cost $100 million, but will generate cash flows that start at $15 million in one year and then grow at 4% per year forever. What is the NPV of the acquisition?

> FastTrack Bikes, Inc., is thinking of developing a new composite road bike. Development will take six years and the cost is $200,000 per year. Once in production, the bike is expected to make $300,000 per year for ten years. The cash inflows begin at the

> You have an opportunity to invest $50,000 now in return for $60,000 in one year. If your cost of capital is 8%, what is the NPV of this investment?

> Suppose Capital One is advertising a 60-month, 5.99% APR motorcycle loan. If you need to borrow $8000 to purchase your dream Harley-Davidson, what will your monthly payment be?

> You make monthly payments on your car loan. It has a quoted APR of 5% (monthly compounding). What percentage of the outstanding principal do you pay in interest each month?

> You are thinking of making an investment in a new plant. The plant will generate revenues of $1 million per year for as long as you maintain it. You expect that the maintenance costs will start at $50,000 per year and will increase 5% per year thereafter

> You are considering two ways of financing a spring break vacation. You could put it on your credit card, at 15% APR, compounded monthly, or borrow the money from your parents, who want an 8% interest payment every six months. Which is the lower rate?

> Suppose you are considering renting an apartment. You, the renter, can be viewed as an agent while the company that owns the apartment can be viewed as the principal. What agency conflicts do you anticipate? Suppose, instead, that you work for the apartm

> Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of a. six months. b. one year. c. one month.

> Tailor Johnson, a U.S. maker of fine menswear, has a subsidiary in Ethiopia. This year, the subsidiary reported and repatriated earnings before interest and taxes (EBIT) of 100 million Ethiopian birrs. Assume the current exchange rate is 8 birr/$ or The

> Manzetti Foods, a U.S. food processing and distribution company, is considering an investment in Germany. You are in Manzetti’s corporate finance department and are responsible for deciding whether to undertake the project. The expected

> The dollar cost of debt for Healy Consulting, a U.S. research firm, is 7.5%. The firm faces a tax rate of 30% on all income, no matter where it is earned. Managers in the firm need to know its yen cost of debt because they are considering launching a new

> Maryland Light, a U.S. manufacturer of light fixtures, is considering an investment in Japan. The dollar cost of equity for Maryland Light is 11%. You are in the corporate treasury department, and you need to know the comparable cost of equity in Japanes

> Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s dividend to grow by 6% per year, what is its price per share if the firm’s equity cost of capital is 11%?

> You work for a U.S. firm, and your boss has asked you to estimate the cost of capital for countries using the euro. You know that S = $1.20/€ and F1 = $1.157/€. Suppose the dollar WACC for your company is known to be 8%. If these markets are internationa

> You have been accepted into college. The college guarantees that your tuition will not increase for the four years you attend college. The first $10,000 tuition payment is due in six months. After that, the same payment is due every six months until you

> Etemadi Amalgamated, the U.S. manufacturing company in Problem 7, is still considering a new project in Portugal. All information presented in Problem 7 is still accurate, except the spot rate is now S = $0.85/€ about 26% lower. What is

> Etemadi Amalgamated, a U.S. manufacturing firm, is considering a new project in Portugal. You are in Etemadi’s corporate finance department and are responsible for deciding whether to undertake the project. The expected free cash flows,

> Mia Caruso Enterprises, a U.S. manufacturer of children’s toys, has made a sale in India and is expecting a 400 million rupee cash inflow in one year. (The currency of India is the rupee). The current spot rate is S = $0.022/rupee and the one-year forwar

> You plan to deposit $500 in a bank account now and $300 at the end of one year. If the account earns 3% interest per year, what will the balance be in the account right after you make the second deposit?

> You are thinking about investing $5000 in your friend’s landscaping business. Even though you know the investment is risky and you can’t be sure, you expect your investment to be worth $5750 next year. You notice that the rate for one-year Treasury bills

> You are a U.S. investor who is trying to calculate the present value of a €5 million cash inflow that will occur one year in the future. The spot exchange rate is S = $1.25/€ and the forward rate is F1 = $1.215/€ You estimate that the appropriate dollar

> You are a broker for frozen seafood products for Choyce Products. You just signed a deal with a Belgian distributor. Under the terms of the contract, in one year you will deliver 4000 kilograms of frozen king crab for 100,000 euros. Your cost for obtaini

> Suppose your employer offers you a choice between a $5000 bonus and 100 shares of the company’s stock. Whichever one you choose will be awarded today. The stock is currently trading for $63 per share. a. Suppose that if you receive the stock bonus, you a

> You are an international shrimp trader. A food producer in the Czech Republic offers to pay you 2 million Czech koruna today in exchange for a year’s supply of frozen shrimp. Your Thai supplier will provide you with the same supply for 3 million Thai bah

> What four financial statements can be found in a firm’s 10-K filing? What checks are there on the accuracy of these statements?

> Suppose the interest rate is 8% APR with monthly compounding. What is the present value of an annuity that pays $100 every six months for five years?

> Suppose Acap Corporation will pay a dividend of $2.80 per share at the end of this year and a dividend of $3 per share next year. You expect Acap’s stock price to be $52 in two years. Assume that Acap’s equity cost of capital is 10%. a. What price would

> NoGrowth Corporation currently pays a dividend of $0.50 per quarter, and it will continue to pay this dividend forever. What is the price per share of NoGrowth stock if the firm’s equity cost of capital is 15%?

> Achi Corp. has preferred stock with an annual dividend of $3. If the required return on Achi’s preferred stock is 8%, what is its price?

> Anle Corporation has a current stock price of $20 and is expected to pay a dividend of $1 in one year. Its expected stock price right after paying that dividend is $22. a. What is Anle’s equity cost of capital? b. How much of Anle’s equity cost of capita

> The yield to maturity of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6% APR, compounded semiannually. What must its price be?

> A local bank is running the following advertisement in the newspaper: “For just $1000 we will pay you $100 forever!” The fine print in the ad says that for a $1000 deposit, the bank will pay $100 every year in perpetuity, starting one year after the depo

> You currently have a one-year-old loan outstanding on your car. You make monthly payments of $300. You have just made a payment. The loan has four years to go (i.e., it had an original term of five years). Show the timeline from your perspective. How wou

> For each of the following pairs of Treasury securities (each with $1000 par value), identify which will have the higher price: a. A three-year zero-coupon bond or a five-year zero coupon bond? b. A three-year zero-coupon bond or a three-year 4% coupon bo

> Assume Evco, Inc., has a current stock price of $50 and will pay a $2 dividend in one year; its equity cost of capital is 15%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its curre

> What is the price per $100 face value of a four-year, zero-coupon, risk-free bond?

> Your bank account pays interest with an EAR of 5%. What is the APR quote for this account based on semiannual compounding? What is the APR with monthly compounding?

> What is the price per $100 face value of a two-year, zero-coupon, risk-free bond?

> Your company wants to raise $10 million by issuing 20-year zero-coupon bonds. If the yield to maturity on the bonds will be 6% (annually compounded APR), what total principal amount of bonds must you issue?

> Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods): a. What is the maturity of the bond (in years)? b. What is the coupon rate (in percent)? c. What is the face value? 1 3 20 ... $20 $2

> Consider a ten-year bond with a face value of $1000 that has a coupon rate of 5.5%, with semiannual payments. a. What is the coupon payment for this bond? b. Draw the cash flows for the bond on a timeline.

> A BBB-rated corporate bond has a yield to maturity of 8.2%. A U.S. Treasury security has a yield to maturity of 6.5%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semiannual coupons at a rate of 7% and have five years to ma

> HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). The following table summarizes the yield to maturity for

> What is the shape of the yield curve given in the following term structure? What expectations are investors likely to have about future interest rates? 1 year 2 years 3 years 5 years 7 years 10 years 20 years Term 1.99 2.41 2.74 3.32 3.76 4.13 4.93

> Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7% (annual coupon payments) and a face value of $1000. Andrew believes it can get a rating of A from Standard & Poor’s. However, due to recent financial difficulties at the c

> You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $5000. You plan to put down $1000 and borrow $4000. You will need to make annual payments of $1000 at the end of each year. Show the timeline of the loan from

> The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security……………………Yield (%) Treasury…………………… …………3.1 AAA corporate…………………………3.2 BBB corporate…………………………4.2 B corporate ……………………………..4.9 a. What is the price

> You have found three investment choices for a one-year deposit: 10% APR compounded monthly, 10% APR compounded annually, and 9% APR compounded daily. Compute the EAR for each investment choice. (Assume that there are 365 days in the year.)

> Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%. You hold the bond for five years before selling it. a. If the bond’s yield to maturity is 6% when you sell it, what is the rate of return of your investment? b. If the bond’

> Anzio, Inc., has two classes of shares. Class B has ten times the voting rights as Class A. If you own 10% of the class A shares and 20% of the Class B shares, what percentage of the total voting rights do you hold?

> What is the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%?

> Suppose you purchase a ten-year bond with 6% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond’s yield to maturity was 5% when you purchased and sold the bond, a. W

> Your company currently has $1000 par, 6% coupon bonds with ten years to maturity and a price of $1078. If you want to issue new ten-year coupon bonds at par, what coupon rate do you need to set? Assume that for both bonds, the next coupon payment is due

> Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment?

> Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment?

> You are pleased to see that you have been given a 5% raise this year. However, you read on the Wall Street Journal Web site that inflation over the past year has been 2%. How much better off are you in terms of real purchasing power?