The price of Ervin Corp. stock will be either $74 or $96 at the end of the year. Call
options are available with one year to expiration. T-bills currently yield 5 percent.
a. Suppose the current price of Ervin stock is $80. What is the value of the call o
Cavo Corporation expects an EBIT of $19,750 every year forever.
The company currently has no debt, and its cost of equity is 15 percent.
a. What is the current value of the company?
b. Suppose the company can borrow at 10 percent. If the corporate tax rat
Rolston Corporation is comparing two different capital structures, an all-equity plan (Plan
I) and a levered plan (Plan II). Under Plan I, Rolston would have 265,000 shares of stock
outstanding. Under Plan II, there would be 185,000 shares of stock outsta
The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its
operations. Some recent financial information for the company is shown here:
Stock price .
Number of shares .
Total assets .
Total liabilities .
Stackhouse Industries has a new project available that requires an initial investment of
$4.5 million. The project will provide unlevered cash flows of $675,000 per year for the
next 20 years. The company will finance the project with a debt-to-value rati
Overnight Publishing Company (OPC) has $2.5 million in excess cash. The firm plans to
use this cash either to retire all of its outstanding debt or to repurchase equity. The firms
debt is held by one institution that is willing to sell it back to OPC for
McKENZIE CORPORATION'S CAPITAL BUDGET
McKenzie currently has a bond issue outstanding with a face value of
This restriction means that the expansion will ben entirely financed with equity at a