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Question
Blenman Corporation, based in the United States, arranged a 2-year, $1,000,000 loan to fund a project in Mexico. The loan is denominated in Mexican pesos, carries a 7.50% nominal rate, and requires equal semiannual payments. The exchange rate at the time of the loan was 5.75 pesos per dollar, but it dropped to 5.10 pesos per dollar before the first payment came due. The loan was not hedged in the foreign exchange market. Thus, Blenman must convert U.S. funds to Mexican pesos to make its payments. If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period, what effective annual interest rate will Blenman end up paying on the loan? Do not round the intermediate calculations and round the final answer to two decimal places.
a. 21.29%
b. 21.86%
c. 14.89%
d. 22.43%
e. 18.84%
Answer
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Related questions
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Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 19.25%, with interest paid monthly, what is the card's EFF%?
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e. $4,656.67
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e. 10.86%
Q:
You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 13.0%?
0 1 2 3 4
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Q:
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Q:
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a. 1.82
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Q:
Refer to Exhibit 4.1. What is the firm's total debt to total capital ratio? Do not round your intermediate calculations.
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c. 58.04%
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Q:
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a. True
b. False
Q:
Modigliani and Miller (MM), in their second article, took account of taxes, bankruptcy, and other factors that were assumed away in their original article. Once they took account of all these assumptions, they concluded that every firm has a unique optimal capital structure. Moreover, a manager can use the second MM model to determine his or her firm's optimal debt ratio.
a. True
b. False
Q:
The Miller model begins with the Modigliani and Miller (MM) model without corporate taxes and then adds personal taxes.
a. True
b. False
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As the text indicates, a firm's financial risk can and should be divided into separate market and diversifiable risk components.
a. True
b. False
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It is possible for Firms A and B to have identical financial and operating leverage, yet for Firm A to have more risk as measured by the variability of EPS. This would occur if Firm A has more business risk than Firm B.
a. True
b. False
Q:
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WACC 10.0%
Equipment cost $70,000
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u200b u200b
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Annual operating costs $30,000
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Q:
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c. The interest rate today on a 2-year bond should be approximately 7%.
d. The interest rate today on a 3-year bond should be approximately 7%.
e. The interest rate today on a 3-year bond should be approximately 8%.
Q:
Assuming that the term structure of interest rates is determined as posited by the pure expectations theory, which of the following statements is CORRECT?
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b. An upward-sloping yield curve implies that future short-term rates are expected to decline.
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e. Consumer prices as measured by an index of inflation are expected to rise at a constant rate.
Q:
In the foreseeable future, the real risk-free rate of interest, r*, is expected to remain at 3%, inflation is expected to steadily increase, and the maturity risk premium is expected to be 0.1(t 1)%, where t is the number of years until the bond matures. Given this information, which of the following statements is CORRECT?
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Q:
A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $825. If the yield to maturity remains at its current rate, what will the price be 5 years from now?
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Q:
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Q:
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a. 1, 3, 4, 6
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c. 1, 2, 3, 4, 6
d. 1, 2, 3, 4, 5, 6
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Q:
Which of the following statements is CORRECT?
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c. A 10-year coupon bond would have more reinvestment risk than a 5-year coupon bond, but all 10-year coupon bonds have the same amount of reinvestment risk.
d. A 10-year coupon bond would have more price risk than a 5-year coupon bond, but all 10-year coupon bonds have the same amount of price risk.
e. If their maturities and other characteristics were the same, a 5% coupon bond would have less price risk than a 10% coupon bond.
Q:
Last year Jandik Corp. had $270,000 of assets (which is equal to its total invested capital), $18,750 of net income, and a debt-to-total-capital ratio of 37%. Now suppose the new CFO convinces the president to increase the debt-to-total-capital ratio to 48%. Sales, total assets and total invested capital will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE? Do not round your intermediate calculations.
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c. 21.48
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e. 20.39
Q:
Herring Corporation has operating income of $275,000 and a 25% tax rate. The firm has short-term debt of $143,000, long-term debt of $323,000, and common equity of $466,000. What is its return on invested capital?
a. 20.88%
b. 21.46%
c. 22.13%
d. 23.38%
e. 24.23%
Q:
X-1 Corp's total assets at the end of last year were $365,000 and its EBIT was $52,500. What was its basic earning power (BEP) ratio?
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Q:
Which of the following statements is CORRECT?
a. A time line is not meaningful unless all cash flows occur annually.
b. Time lines are not useful for visualizing complex problems prior to doing actual calculations.
c. Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
d. Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.
e. Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.
Q:
Which of the following statements is CORRECT?
a. A time line is not meaningful unless all cash flows occur annually.
b. Time lines are not useful for visualizing complex problems prior to doing actual calculations.
c. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
d. Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.
e. Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.
Q:
Which of the following statements is CORRECT?
a. A time line is not meaningful unless all cash flows occur annually.
b. Time lines are useful for visualizing complex problems prior to doing actual calculations.
c. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
d. Time lines cannot be constructed for annuities where the payments occur at the beginning of the periods.
e. Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.
Q:
When a loan is amortized, a relatively high percentage of the payment goes to reduce the outstanding principal in the early years, and the principal repayment's percentage declines in the loan's later years.
a. True
b. False
Q:
As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or less than the nominal rate on the deposit (or loan).
a. True
b. False