EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Chapter 10, Problem 22P
Summary Introduction
To discuss: If Person X (risk-averse investor) would choose to invest in one of the two economies.
Introduction:
Risk refers to the fluctuations (or movements) in the value of an asset; the fluctuations can be positive or negative. A positive price movement will benefit the investor, and a negative price movement will not benefit the investor.
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General Finance Question
Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes):
Income Statement
Balance Sheet
Sales
Costs
$ 40,000 Assets
34,160
$26,000
Debt
Equity
$ 7,000
19,000
Net income $ 5,840
Total
$26,000
Total
$26,000
The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the
form of a cash dividend. Costs and assets vary with sales, but debt and equity do not.
Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate
calculations and round your answers to the nearest whole dollar amount.)
Pro forma income statement
Sales
Costs
$ 48000
40992
Assets
$ 31200
Pro forma balance sheet
Debt
7000
Equity
19000
Net income
$ 7008
Total
$ 31200
Total
30304
What is the external financing needed? (Do not round intermediate calculations. Negative amount
should be indicated by a minus sign.)
External financing needed
$
896
Chapter 10 Solutions
EBK CORPORATE FINANCE
Ch. 10.1 - For an investment horizon from 1926 to 2012, which...Ch. 10.1 - For an investment horizon of just one year, which...Ch. 10.2 - Prob. 1CCCh. 10.2 - Prob. 2CCCh. 10.3 - How do we estimate the average annual return of an...Ch. 10.3 - Prob. 2CCCh. 10.4 - Prob. 1CCCh. 10.4 - Do expected returns of well-diversified large...Ch. 10.4 - Do expected returns for Individual stocks appear...Ch. 10.5 - What is the difference between common risk and...
Ch. 10.5 - Prob. 2CCCh. 10.6 - Explain why the risk premium of diversifiable risk...Ch. 10.6 - Why is the risk premium of a security determined...Ch. 10.7 - What is the market portfolio?Ch. 10.7 - Define the beta of a security.Ch. 10.8 - Prob. 1CCCh. 10.8 - Prob. 2CCCh. 10 - The figure on page informalfigure shows the...Ch. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - The last four years of returns for a stock are as...Ch. 10 - Prob. 9PCh. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - How does the relationship between the average...Ch. 10 - Consider two local banks. Bank A has 100 loans...Ch. 10 - Prob. 21PCh. 10 - Prob. 22PCh. 10 - Consider an economy with two types of firms, S and...Ch. 10 - Prob. 24PCh. 10 - Explain why the risk premium of a stock does not...Ch. 10 - Prob. 26PCh. 10 - Prob. 27PCh. 10 - What is an efficient portfolio?Ch. 10 - What does the beta of a stock measure?Ch. 10 - Prob. 31PCh. 10 - Prob. 32PCh. 10 - Prob. 33PCh. 10 - Suppose the risk-free interest rate is 4%. a. i....Ch. 10 - Prob. 35PCh. 10 - Prob. 36PCh. 10 - Suppose the market risk premium is 6.5% and the...Ch. 10 - Prob. 38P
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