Rackin Pinion Corporations assets are currently worth $1,030. In one year, they will be worth either $1,000
Question:
Rackin Pinion Corporation’s assets are currently worth $1,030. In one year, they will be worth either $1,000 or $1,270. The risk-free interest rate is 3.7 percent. Suppose the company has an outstanding debt issue with a face value of $1,000.
a. What is the value of the equity?
b. What is the value of the debt? The interest rate on the debt?
c. Would the value of the equity go up or down if the risk-free rate were 20 percent? Why? What does your answer illustrate?
Step by Step Answer:
a The value of equity is the difference between the value of the assets and the value of the debt ...View the full answer
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Related Video
Interest, debt, finance, and capital markets are all important concepts in the world of economics and business. Interest is the cost of borrowing money, and it is typically expressed as a percentage of the amount borrowed. Debt is the money that is borrowed, and it has to be repaid with interest. Finance is the study of how individuals, companies, and organizations manage their money and investments. Capital markets are the places where companies and governments can raise money by selling stocks and bonds to investors. These markets play an important role in the overall economy by helping to fund investment and growth.
Students also viewed these Business questions
-
The firm has a single outstanding debt issue with a promised maturity payment of $120 in 5 years. What is the probability of bankruptcy? What is the credit spread?
-
The firm has a single outstanding debt issue with a promised maturity payment of $120 in 5 years. What is the probability of bankruptcy? What is the credit spread? Assume that a firm has assets of...
-
Suppose Suncor Energy has outstanding longterm bonds with a face value of $1,000, a 10 coupon rate, 25 years remaining until maturity, and a current market value of $1,21482 If Suncor Energy pays...
-
What is the output produced from the following statements? System.out.println("name\tage\theight"); System.out.println("Archie\t17\t5'9\""); System.out.println("Betty\t17\t5'6\"");...
-
A solution is prepared from 0.150 mol of formic acid and enough water to make 0.425 L of solution. a. Determine the concentrations of H3O+ and HCOO in this solution. b. Determine the H3O+...
-
Determine the sample variance and standard deviation for the following data by using the computational formula. Class f 5under 9 .........20 9under 13 .........18 13under 17 ........ 8 17under 21...
-
Prepare a balance sheet and a common sized balance sheet for Siam Cement Group (SCG), based in Thailand, from the following information (in Thai baht). Cash Accounts Receivable. Accounts Payable...
-
Assume that you are on the board of directors of a company that has decided to buy 80 percent of the outstanding stock of another company within the next three or four months. The discussions have...
-
11. The current in a metallic conductor is plotted against voltage at two different temperatures T and T2. Which is correct :- Current 2 (1) T Voltage (2) T
-
The information listed below refers to the employees of Lemonica Company for the year ended December 31, 2016. The wages are separated into the quarters in which they were paid to the individual...
-
A one-year call option contract on Cheesy Poofs Co. stock sells for $725. In one year, the stock will be worth $64 or $81 per share. The exercise price on the call option is $70. What is the current...
-
Buckeye Industries has a bond issue with a face value of $1,000 that is coming due in one year. The value of the companys assets is currently $1,060. The CEO believes that the assets in the company...
-
Solve the linear system given explicitly or by its augmented matrix. Show details. x + y - z = 9 8y + 6z = -6 -2x + 4y - 6z = 40
-
Discuss the concept of double-entry accounting and its benefits. What is the significance of the materiality principle in accounting standards?
-
Discuss any five (5) tools that can be used to recover deleted files and five (5) tools used in digital forensic and Discuss the advantages and the contributions of cyber security in our everyday...
-
Using a factory overhead allocation method such as the single plantwide factory overhead rate can cause product cost distortions. However, this method is less complicated and inexpensive to maintain....
-
Both financial and managerial accounting are important to a company's success. What do you think contributes more to this success and why?
-
According to the American Economic Association the annual salary of an exonomics major mind career is?
-
(a) What is the dimension of the vector space of 2 2 symmetric matrices? (b) Of skew-symmetric matrices? (c) Generalize to 3 3 case. (d) What about n n matrices?
-
Refer to the information from Exercise 22-19. Use the information to determine the (1) Weighted average contribution margin , (2) Break-even point in units, and (3) Number of units of each product...
-
The following is the sales budget for Harp, Inc., for the first quarter of 2015: January February March Sales budget...........$216,000.........$241,000....$257,000 Credit sales are collected as...
-
Here are some important figures from the budget of Nashville Nougats, Inc., for the second quarter of 2015: The company predicts that 5 percent of its credit sales will never be collected, 35 percent...
-
Below are the most recent balance sheets for Country Kettles, Inc. Excluding accumulated depreciation, determine whether each item is a source or a use of cash and the amount: COUNTRY KETTLES, INC....
-
what are the issues with leadership and its impact on creative culture/climate, by using amabile's keys?
-
In the context of leadership, what does the term "visionary leader" imply?
-
b) Using a 3-week weighted moving average, with weights of 0.15, 0.35, and 0.50, using 0.50 for the most recent week, the forecasted demand for the week of October 12 = 125.43 pints (round your...
Study smarter with the SolutionInn App