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?
The Hang Seng TECH Index (HSTECH) is currently trading at 8,100. The index is anticipated to pay no dividends in the next 8 months. It has an annualized volatility of 30%. The interest rate is 5% per annum with continuous compounding. Consider a 6-month American put option on HSTECH with a strike of 8,200. Construct a 2-period binomial model to answer the following questions. (a) Draw and determine the stock index process at each node. (b) Compute the prices of the American put option at each node. (c) How much is the early exercise premium? (d) Explain why early exercise of an American put option on non-dividend-paying asset may be optimal
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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
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Please solve...
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…
The total market value of the equity of Okefenokee Condos is $3 million, and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock currently is 1.1 and that the expected risk premium on the market is 10%. The Treasury bill rate is 5%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? Note: Do not round intermediate calculations. Enter your answer as a whole percent. b. Estimate the WACC assuming a tax rate of 21%. Note: (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. Estimate the discount rate for an expansion of the company's present business. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 1.3.…
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Sunburn Sunscreen has a zero coupon bond issue outstanding with a face value of $30,000 that matures in one year. The current market value of the firm's assets is $31,800. The standard deviation of the return on the firm's assets is 36 percent per year and the annual risk-free rate is 4 percent per year, compounded continuously. Based on the Black-Scholes model, what is the market value of the firm's equity and debt? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Equity Debt

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