Corporate Finance FE - Essay Example

It is of note that only the long-term operating assets are incorporated in the calculation for the NOWC but not the short-term investments to be considered as the operating working capital because these short term investments are assumed to be interest bearing securities that to an extent do not directly finance or result from the operations of the Widget Corporation. 2. Seven years ago ABC Inc. issued a series of $1,000 bonds (i.e. Par = $1,000) @ 10% compounded semiannually for a term of 30 years.

Additionally, the bonds are callable with a call premium of two coupon payments. Today, the market rate is 10% and each single bond is trading for $844.76. If ABC Inc. wants to raise new debt today, what would be ABC’s marginal cost of debt? Assume no significant change in ABC’s bond rating. Supposing there is no substantial alteration in the ABC’s bond rating means that today’s market bond rate is the same as market rate at the issuance time of the bond, thus the bond trades at par value ($ 1,000).

The rate 12% calculated shows the market rate of the bond at present. Remember the present bond value is $ 844.76. The 12% rate represents the Yield To Maturity and therefore is a good estimation figure for the marginal cost of debt. 3. Considering Stand Alone Risk and the calculation of the Coefficient of Variation (CV), you are to develop a series of at least five historical returns for a financial asset and from these returns you are to calculate the CV for this financial asset. 4. You are bearing in mind making an investment in form of a project.

The initial cost (I0) equals $1,200. In return for this initial outlay, you will own the rights to three future cash flows: CF1 = $300, CF2 = $400, and CF3 = $500. First, if the appropriate discount rate for this investment is 12%, what is the NPV for this project? Second, what discount rate would