Berkshire Hathaway Inc. is considering a business expansion to the gambling industry by acqui year indefinitely. The risk-free rate of return is 5% and the market risk premium, over and above the risk-free rat Berkshire estimates that the beta of the casino is 1.2 and plans to maintain the debt-equity rati which pay an annual coupon of 4% and have a yield to maturity of 5%. Berkshire faces a 40% ta What is the maximum price Berkshire would pay for the casino in order for the acquisition to b a. $150.0 million

Berkshire Hathaway Inc. is considering a business expansion to the gambling industry by acqui year indefinitely. The risk-free rate of return is 5% and the market risk premium, over and above the risk-free rat Berkshire estimates that the beta of the casino is 1.2 and plans to maintain the debt-equity rati which pay an annual coupon of 4% and have a yield to maturity of 5%. Berkshire faces a 40% ta What is the maximum price Berkshire would pay for the casino in order for the acquisition to b a. $150.0 million

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A corporation is planning to sell its 90 - day commercial paper to investors offering a 10.2 percent yield. If the liquidity premium is estimated to be 0.2 percent, and there is a 0.4 percent tax adjustment. Also, the three month real annualized rate is 5.6 percent and expected inflation is 1.1 percent. What is the appropriate default premium?
Builtrite needs to raise $2,000,000 for a plant improvement. It plans to sell $1000 par value bonds with a 10% coupon rate arde a 15 year maturity. Investors require a 9% rate of return. Calculate the market value of the bonds, what is the net price of the bonds if flotation costs are 5% of the market price?
Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 20-year zero coupon bonds with a par value of $1,000 each to raise the money. The required return on the bonds will be 8 percent. Assume semiannual compounding periods. a. What will these bonds sell for at issuance? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Repeat part (b) using the straight-line method for the interest deduction. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. b. C. Issue price First year interest deduction Last year interest deduction Interest deduction $ $ 208.29 39.58
A firm plans to issue 20 years bonds with a 7% annual coupon rate. The face value will be $1000 and the bonds will sell at par. If their investment banker charges them flotation costs of 5%, what will the YTM be on the bonds?
What is the present value of a security that will pay $17,000 in 20 years if securities of equal risk pay 8% annually? Do not round intermediate calculations. Round your answer to the nearest cent.
A firm with an AA rating likes to issue one million units of a 10 year-2% bond with face value $100. The yearly coupon payment is $2.40. After the financial crisis the firm is downgraded to a B+ rating. The yield curve is flat and the yield is 2% (per year). The default spreads are given in the table below. (a) What is the initial amount (before downgrading) the firm wants to raise? (b) How much can this now B+ rated firm raise by selling the same bond? (c) If the firm keeps the coupon rate and wants to raise the planned amount, how many more bonds does it issue? (d) What is the additional interest payment per year the firm has to pay? (e) Suppose the firm wants to raise the same total amount and adjusts the coupon payment so as to sell the bond for $100 each. What is the new coupon rate? (f) What is the additional interest payment per year the firm has to pay? Rating Default spread AAA 0.20% AA 0.40% A+ 0.60% A 0.80% A- 1.00% BBB…
What is the present value of a security that will pay $22,000 in 20 years if securities of equal risk pay 7% annually? Do not round intermediate calculations. Round your answer to the nearest cent. $
The shares of XYZ Inc. are currently selling for $120 per share. The shares are expected to go up by 10 percent or down by 5 percent in each of the following two months (Month 1 and Month 2). XYZ Inc. is also expected to pay a dividend yield of 2 percent at the end of Month 1. The risk-free rate is 0.5 percent per month. a. What is the value of an American call option on XYZ shares, with an exercise price of $125 and two months to expiration? Use the binomial model to obtain the answer. b. Draw a binomial tree diagram for this American call option, showing the share price, call price, and whether the call should be exercised at each state during the next two months. ***Answer b only

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