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- Download: http://solutionzip.com/downloads/quadruple/
- 1) How long does it take $1,000 to quadruple in value if you
- Resolved Question:
- 1) How long does it take $1,000 to quadruple in value if you have an 11% annual return? Assume annual compounding, and express your answer in years (to two decimals)
- 2) Assume the following spot and forward rates for the euro ($/euro).
- Spot rate: $1.6277
- 30 day forward rate: $1.6330
- 90 day forward rate: $1.6353
- 120 day forward rate: $1.6387
- A) What is the dollar value of one euro in the spot market?
- B) Suppose you issued a 120-day forward contract to exchange 200,000 euros into Canadian dollars. How many dollars are involved?
- C) How many euros can you get for one dollar in the spot market?
- D) What is the 120-day forward premium?
- 3) The MacHardee Plumbing Company has common stock outstanding. The stock paid a dividend of $2.00 per share last year, but the company expects that earnings and dividends will grow by 25% for the next two years before dropping to a constant 9% growth rate afterward. The required rate of return on similar common stocks is 13%.
- What is the per-share value of the companyโs common stock?
- 4) Defense Electronics Corporation is considering building an overseas manufacturing facility to produce radar detection systems. As a consultant to DEC, you have the contract to determine the appropriate discount rate for evaluating this project.
- Current information regarding DEC includes:
- Debt: 25,000 bonds outstanding, each with a coupon rate of 6.5% paid semi-annually, par value of $1,000, maturity of 20 years, and current value of 96% of par.
- Common Stock: 400,000 shares outstanding with a current value of $89/share. An annual dividend of $4.74 has just been paid, and dividends are expected to grow by 9% annually into the foreseeable future.
- Preferred Stock: 35,000 shares of 6.5% stock with a par value of $100/share, and a current value of $99/share.
- Tax rate: DECโs combined tax rate is 34%.
- Other liabilities: DEC has the usual accounts payable and accruals on its balance sheet, but does not regularly utilize any interest-bearing debt other than the bonds described above.
- Risk Adjustment: Since the new manufacturing facility is to be built overseas, management is suggesting an adjustment factor of +2% to account for the increased riskiness.
- Showing your work, recommend an appropriate discount rate for DECโs proposed venture. You must show your work to receive any credit.
- Download: http://solutionzip.com/downloads/quadruple/
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