Disaster Airlines is a firm in severe financial distress. The firm can no longer pay its bills on time
and it is far behind on payments to its banks and long-term debt holders. The firm has decided to
NoNuns Cos. has a 25 percent tax rate and has $350 million in assets, currently financed entirely
with equity. Equity is worth $37 per share, and book value of equity is equal to market value of
equit
Suppose that JB Cos. has a capital structure of 78 percent equity, 22 percent debt, and that its
before-tax cost of debt is 11 percent while its cost of equity is 15 percent. If the appropriate
weight
Describe the difference in the timing of trade execution and the certainty of trade price between
market orders and limit orders.
SOLUTION
Market makers fill market orders immediately at the current s
Daddi Mac, Inc., doesnt face any taxes and has $350 million in assets, currently financed
entirely with equity. Equity is worth $37 per share, and book value of equity is equal to market
value of equi
Problem 1-2A
Name:
Section:
Enter the appropriate amount or item in the shaded cells.
An asterisk (*) will appear next to an incorrect amount in the outlined cells.
1.
HEAVENLY TRAVEL SERVICE
Income S
NoNuns Cos. has a 25 percent tax rate and has $350 million in assets, currently financed entirely
with equity. Equity is worth $37 per share, and book value of equity is equal to market value of
equit
You have approached your local bank for a start-up loan commitment for $250,000 needed to
open a computer repair store. You have requested that the term of the loan be one year. Your
bank has offered
WhackAmOle has two million shares of common stock outstanding, 1.5 million shares of
preferred stock outstanding, and 50,000 bonds. If the common shares are selling for $63 per
share, the preferred sh
KADS, Inc. has spent $400,000 on research to develop a new computer game. The firm is
planning to spend $200,000 on a machine to produce the new game. Shipping and installation
costs of the machine wi
Daddi Mac, Inc., doesnt face any taxes and has $290 million in assets, currently financed
entirely with equity. Equity is worth $37 per share, and book value of equity is equal to market
value of equi
JBK, Inc., normally pays an annual dividend. The last such dividend paid was $2.50, all future
dividends are expected to grow at 5 percent, and the firm faces a required rate of return on equity
of 11
GTB, Inc., has a 34 percent tax rate and has $100 million in assets, currently financed entirely
with equity. Equity is worth $7 per share, and book value of equity is equal to market value of
equity.
Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year,
but then pays the dividend out as four equal quarterly payments. If the next such annual
dividend ha
Suppose that the 2013 actual and 2014 projected financial statements for Comfy Corners Catbeds
are initially shown as follows. In these tables, sales are projected to rise by 22 percent in the
coming
Suppose that the 2013 actual and 2014 projected financial statements for AFS are initially shown
as follows. In these tables, sales are projected to rise by 14 percent in the coming year, and the
comp
GTB, Inc., has a 34 percent tax rate and has $100 million in assets, currently financed entirely
with equity. Equity is worth $7 per share, and book value of equity is equal to market value of
equity.
Carnival Corp. provides cruises to major vacation destinations. Carnival operates 100 cruise
ships with a total capacity of 180,746 passengers in North America, Europe, the United
Kingdom, Germany, Au
Suppose that the 2013 actual and 2014 projected financial statements for your firm are initially shown
as follows. In these tables, sales are projected to rise by 18 percent in the coming year, and th
NoNuns Cos. has a 25 percent tax rate and has $350 million in assets, currently financed entirely
with equity. Equity is worth $37 per share, and book value of equity is equal to market value of
equit
LandoToys is a profitable, medium-sized, retail company. Several years ago, it issued a 6.5
percent coupon bond, which pays interest semiannually. The bond will mature in 10 years and is
currently pri
On March 5, 2013, the Dow Jones Industrial Average set a new high. The index closed at
14,253.77, which was up 125.95 that day. What was the return (in percent) of the stock market
that day?
SOLUTION
You are considering adding a new software title to those published by your highly successful
software company. If you add the new product, it will use capacity on your disk duplicating
machines that y
Annual dividends of AT&T Corp (T) grew from $0.96 in 2000 to $1.76 in 2012. What was the
annual growth rate?
SOLUTION
Use equation 4-2:
Future value in 12 years $1.76 $0.96 1 g g 5.18%
12
Or
N=12, PV=
Consider the following three bond quotes; a Treasury bond quoted at 106:14, a corporate bond
quoted at 96.55, and a municipal bond quoted at 100.95. If the Treasury and corporate bonds
have a par valu
What is the taxable equivalent yield on a municipal bond with a yield to maturity of 3.5 percent
for an investor in the 33 percent marginal tax bracket?
SOLUTION
Use equation 7.4:
Equivalent taxable y
What is the taxable equivalent yield on a municipal bond with a yield to maturity of 2.9 percent
for an investor in the 28 percent marginal tax bracket?
SOLUTION
Use equation 7.4:
Equivalent taxable y
Rank the following bonds in order from lowest credit risk to highest risk, all with the same time
to maturity, by their yield to maturity: Treasury bond with yield of 4.65 percent, United Airline
bond
Determine the interest payment for the following three bonds: 4.5percent coupon corporate bond
(paid semiannually), 5.15 percent coupon Treasury note, and a corporate zero coupon bond
maturing in 15 y
Consider a 3.5 percent TIPS with an issue CPI reference of 185.6. At the beginning of this year,
the CPI was 193.5 and was at 199.6 at the end of the year. What was the capital gain of the TIPS
in dol