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) In March 2005, General Electric (GE) had a book value of equity of $113 billion, 10.6 billion shares outstanding, and a market price of $36 per...

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1.) In March 2005, General Electric (GE) had a book value of equity of $113 billion, 10.6 billion shares outstanding, and a market price of $36 per share. GE also had cash of $13 billion, and total debt of $370 billion. Four years later, in early 2009, GE had a book value of equity of 4105 billion, 10.5 billion share outstanding with a market price of $10.80 per share, cash of $48 billion, and a total debt of $524 billion. Over this period, what was the change in GE's market capitalization? Market-to-book ratio? Book debt-equity ratio? Market debt-equity ratio? Enterprise value? 2.) Suppose a firm’s tax rate is 35%. a.) What effect would a $10 million operating expense have on this year’s earning? What effect would it have on next year’s earning? b.) What effect would a $10 million capital expense have on this years earnings if the capital is depreciated at a rate of $2 million per year for five years? What effect would it have on next years earning? 3.) Suppose the risk-free interest rate is 4%. a.) Having $200 today is equivalent to having what amount in one year? b.) Having $200 in one year is equivalent to having what amount today? c.) Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not? 4.) Your firm has a risk-free investment opportunity where is can invest $160,000 today and receive $170,000 in one year. For what level of interest rates is this project attractive? 5.) Suppose Bank One offers a risk-free interest rate of 5.5% on both savings and loans, and Bank Enn offers a risk-free interest rate of 6% on both savings and loans. a.) What arbitrage opportunity is available? b.) Which bank would experience a surge in the demand for loans? Which bank would receive a surge in deposits? c.) What would you expect to happen to the interest rates the two banks are offering? 6.) The promised cash flows of three securities are listed here. If the cash flows are risk-free, and the risk-free interest rate is 5%, determine the no-arbitrage price of each security before the first cash flow is paid.
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