FINANCE 620 Assignments1. (WACC) If Wild Widgets, Inc., were an all-equity company, it would have a beta of .85. The company has a target debt–equity ratio of .40. The expected return on themarket portfolio is 11 percent, and Treasury bills currently yield 4 percent. Thecompany has one bond issue outstanding that matures in 20 years and has a couponrate of 7 percent. The bond currently sells for $1,080. The corporate tax rate is 34percent.a) What is the company’s cost of debt? (Do not round intermediate calculations and roundyour final answer to 2 decimal places. (e.g., 32.16))Cost of debt _______%b) What is the company’s cost of equity? (Do not round intermediate calculations and roundyour final answer to 2 decimal places. (e.g., 32.16))Cost of equity ______%c) What is the company’s weighted average cost of capital? (Do not round intermediatecalculations and round your final answer to 2 decimal places. (e.g., 32.16))WACC________%2. (IPO Underpricing) The Woods Co. and the Garcia Co. have both announced IPOsat $40 per share. One of these is undervalued by $9, and the other is overvalued by$4, but you have no way of knowing which is which. You plan on buying 1,000shares of each issue. If an issue is underpriced, it will be rationed, and only half yourorder will be filled.a) If you could get 1,000 shares in Woods and 1,000 shares in Garcia, what would yourprofit be? (Do not round intermediate calculations.)Profit _______$b) What profit do you actually expect? (Do not round intermediate calculations.)Expected profit ______$3. (Lease or Buy) Wolfson Corporation has decided to purchase a new machine thatcosts $3.2 million. The machine will be depreciated on a straight-line basis and willbe worthless after four years. The corporate tax rate is 35 percent. The Sur Bankhas offered Wolfson a four-year loan for $3.2 million. The repayment schedule isfour yearly principal repayments of $800,000 and an interest charge of 9 percent onthe outstanding balance of the loan at the beginning of each year. Both principalrepayments and interest are due at the end of each year. Cal Leasing Corporationoffers to lease the same machine to Wolfson. Lease payments of $950,000 per yearare due at the beginning of each of the four years of the lease.a) What is the NAL of leasing for Wolfson? (Do not round intermediate calculations andround your final answer to 2 decimal places. (e.g., 32.16))
NAL _______$b) What is the maximum annual lease Wolfson would be willing to pay? (Enter youranswer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediatecalculations and round your answer to the nearest whole dollar amount. (e.g., 32))Annual lease payment ______$4. (Black-Scholes) A stock is currently priced at $35. A call option with an expiration ofone year has an exercise price of $50. The risk-free rate is 7 percent per year,compounded continuously, and the standard deviation of the stock’s return isinfinitely large. What is the price of the call option?Call option price ______$5. (Put-Call Purity) A put option and a call option with an exercise price of $85 andthree months to expiration sell for $2.40 and $5.09, respectively.If the risk-free rate is 4.8 percent per year, compounded continuously, what is the currentstock price? (Do not round intermediate calculations and round your final answer to 2decimal places. (e.g., 32.16))Current stock price ________$6. (Marking to Market) You are long 10 gold futures contracts, established at an initialsettle price of $1,580 per ounce, where each contract represents 100 ounces. Overthe subsequent four trading days, gold settles at $1,587, $1,582, $1,573, and $1,584,respectively.a) Calculate the profit or loss for each trading day. (A negative amount should beindicated by a minus sign. Do not round intermediate calculations.)Choose: Profit/LossDay 1Day 2Day 3Day 4
$______$______$______$______
b) Compute your total profit or loss at the end of the trading period. (Input amount as apositive value. Do not round intermediate calculations.)$______ (Profit or Loss)7. (Duration) What is the duration of a bond with three years to maturity and acoupon of 7 percent paid annually if the bond sells at par? (Do not round
intermediate calculations and round your final answer to 5 decimal places. (e.g.,32.16161))Duration:_______8. You enter into a forward contract to buy a 10-year, zero coupon bond that will beissued in one year. The face value of the bond is $1,000, and the 1-year and 11-yearspot interest rates are 5 percent and 7 percent, respectively.a) What is the forward price of your contract? (Do not round intermediate calculationsand round your final answer to 2 decimal places. (e.g., 32.16))Forward price
$________
b) Suppose both the 1-year and 11-year spot rates unexpectedly shift downward by 2percent. What is the new price of the forward contract? (Do not round intermediatecalculations and round your final answer to 2 decimal places. (e.g., 32.16))New forward price $________
“WE’VE HAD A GOOD SUCCESS RATE ON THIS ASSIGNMENT. PLACE THIS ORDER OR A SIMILAR ORDER WITH HOMEWORK AIDER AND GET AN AMAZING DISCOUNT”
The post FINANCE 620 ASSIGNMENT appeared first on Homeworkaider.
What Students Are Saying About Us
.......... Customer ID: 12*** | Rating: ⭐⭐⭐⭐⭐"Honestly, I was afraid to send my paper to you, but you proved you are a trustworthy service. My essay was done in less than a day, and I received a brilliant piece. I didn’t even believe it was my essay at first 🙂 Great job, thank you!"
.......... Customer ID: 11***| Rating: ⭐⭐⭐⭐⭐
"This company is the best there is. They saved me so many times, I cannot even keep count. Now I recommend it to all my friends, and none of them have complained about it. The writers here are excellent."
"Order a custom Paper on Similar Assignment at essayfount.com! No Plagiarism! Enjoy 20% Discount!"
