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1. The beta for Eastman Kodak is 1.10. The current six-month treasury bill rate is 3.25%. Estimate the cost of equity for Eastma

Afina-wow [57]

Answer:

1) Cost of equity is 12.501%

2) Price of bond is $935.82

3) Price of semi-annual bond is $934.96

Explanation:

1) Given:

Beta = 1.1

Risk free rate (Rf) = 3.25%

Market risk premium (Rp) = 8.41%

Using CAPM to compute cost of equity:

Re = Rf + β (Rp)

= 3.25 + 1.1(8.41)

= 12.501%

2) Price of bond is present value of bond.

Face value (FV) = $1,000

Maturity (nper) = 10 years

Coupon rate = 8%

Coupon payment (PMT) = 0.08× 1000 = $80

Discount rate (rate) = 9% or 0.09

Using spreadsheet function =PV(rate,nper,pmt,FV)

Price of bond is $935.82. It is negative as it's cash outflow

3) Price of semi-annual bond is present value of bond.

Face value (FV) = $1,000

Maturity (nper) = 10×2 = 20 periods

Coupon rate = 8% ÷ 2 = 4%

Coupon payment (PMT) = 0.04× 1000 = $40

Discount rate (rate) = 9% ÷ 2 = 4.5% or 0.045

Using spreadsheet function =PV(rate,nper,pmt,FV)

Price of semi-annual bond is $934.96

7 0

4 years ago

Suppose People's bank offers to lend you $10,000 for 1 year on a loan contract that calls for you to make interest payments of $

vodka [1.7K]

Answer:

10.38%

Explanation:

The formula to compute the effective annual rate of the loan is shown below:

= (1 + nominal interest rate ÷ periods)^ number of period - 1

The nominal interest rate is shown below:

= $250 × 4 ÷ $10,000

= $1,000 ÷ $10,000

= 0.1

Now the effective annual rate is

= (1 + 0.1 ÷ 4)^4 - 1

= (1 + 0.025)^4 - 1

= 1.025^4 - 1

= 10.38%

Since the interest rate is measured on a quarterly basis, we know there are four quarters in a year and we do the same in the calculation part.

This is the answer but the same is not provided in the given options

4 0

4 years ago

In reviewing research on power, you discover that there are three other common sources of power in organizations. Which of the f

Rudiy27

It is information power

3 0

3 years ago

Havermill Co. establishes a $250 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated recei

Juli2301 [7.4K]

Answer:

<h2>The journal entry is shown below:</h2>

Explanation:

The journal entry for recording the establishment of the fund is as:

On September 1

Petty cash A/c.....................Dr $250

Cash A/c...........................Cr $250

Being recording the petty cash in the books

As creating the fund for the petty cash in the books, the account of petty cash is debited as there is increase in the assets which is debited. And the petty cash is created against cash. Therefore, the cash account is credited.

3 0

4 years ago

A bottling plant fills 2,400 bottles every two hours. The lead time is 40 minutes and a container accommodates 120 bottles. The

Ludmilka [50]

Answer:

= 7.77

≅ 8 kanban cards

Explanation:

K = $\frac{DL(1 + S)}{C}$

K = Number of kanban card sets

D = Average number of units demanded over some time period

L = Lead time to replenish an order

S = Safety stock expressed as a percentage of demand

C = Container size

where,

D = If the average number of units demanded is 2400 and the time period is 2 hours, then that's 1200 in an hour, 1200 in 60 minutes, 20 in one minute.

L = 40

S = 0.1

C = 120

K = 20 * 40 (1 + 0.1) / 120

K = 7.77

approximately

≅ 8 kanban cards

4 0

4 years ago