EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
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Chapter 3, Problem 15P
Summary Introduction

To determine: No-arbitrage price of securities before the first cash flow is paid.

Introduction:

Arbitrage pricing theory is an asset-pricing model. No arbitrage is under arbitrage-free condition. Under this situation, all the assets are priced appropriately and there are no chances of one’s gain to overcome the market gains without facing any risks.

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Jeff Krause purchased 1,000 shares of a speculative stock in January for $1.89 per share. Six months later, he sold them for $9.95 per share. He uses an online broker that charges him $10.00 per trade. What was Jeff's annualized HPR on this investment? Jeff's annualized HPR on this investment is %. (Round to the nearest whole percent.)
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Estefan Industies has a new project available that requires an initial investment of sex million. The project will provide unlevered cash flows of $925,000 per year for the next 20 years. The company will finance the project with a debt-value ratio of 35. The company's bonds have a YTM of 5.9 percent. The companies with operations comparable to this project have unlevered betas of 1.09, 1.17, 1.28, and 1.20. The risk-free rate is 3.6 percent, and the market risk premium is 7 percent. The tax rate is 21 percent. What is the NPV of this project?

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EBK CORPORATE FINANCE

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