Fin Questions - 1) Your parents set up a new bank account...

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1) Your parents set up a new bank account which pays 0.7% interest monthly with a one time deposit of $30,000 on the day you start college. How much money can you withdraw after the first month of college, your first withdrawal, if you want to make 48 monthly withdrawals, increasing the amount of each withdrawal by 0.3%?
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Q2 The beta for IBM stock is 1.5. The expected market return is 10% and risk-free rate is 4% What expected return would you demand from IBM? The market will pay an expected return of 15% Is IBM stock overvalued or undervalued by the market? How would you take advantage of this mispricing? Q3 Returns for the past 5 years on Douglas Stock and NYSE Index are as follows: Douglas NYSE -0.05 -0.12 0.05 0.01 0.08 0.06 0.15 0.10 0.10 0.15 a. What are average returns on Douglas Stock and on the market? b. Compute beta of Douglas Stock Q4 Adobe Co has an equity beta of 1.29
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B/S ratio of 1.0 Expected Market return is 13% Riskfree rate is 7% Cost of debt is 7% Firm is in the 35% tax bracket. a. What is Adobe’s cost of equity? b. What is Adobe’s WACC ? Q5 Calgary Inc. plans a new project that costs $25M Project yields after-tax CF of $7M for 5 years Debt to Equity ratio= 0.75 r s =15%; r B =9%; T C =35% If the project has the same risk as the firm, should Calgary take on the project? Q6 You have a court settlement that gives you an annual payment of $2,000 into perpetuity. If the discount rate is 4%, what is the PV of this settlement? Q7
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This note was uploaded on 01/15/2010 for the course FIN 357 taught by Professor Hadaway during the Fall '06 term at University of Texas at Austin.

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Fin Questions - 1) Your parents set up a new bank account...

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