1-Vandell's free cash flow is 2 million per year and is expected to grow at a constant rate of 5% a year; it eta is 1.4. what is the value of Vandells operations?  If Vandell has 10.82 million in debt, what is the current value of Vandells stock?

2-Hastings estimates that if it acquires Vandell, interest payments will be $1.5 million per year for 3 years, after which the current target capital structure of 30% debt will maintained.  Interest in the fourth year will be$1.472 million after which interest and the tax shield will grow at 5%.  Synergies will cause the free cash flows to be $2.5 million, $2.9 million, $3.4 million, and $3.57 million in year 1 through 4, respectively, after which the free cash flows will grown at a 5% rate.  What is the unlevered value of Vandell, and what is the value fo its tax shields?  What is the per share value of Vandell to Hastings Corporation?  Assume that Vandell now has $10.82 million in debt?

3-On the basis of your answers to problem 1 and 2, indicate the range of possible prices that Hastings could bid for each share of Vandell common stock in an acquisition?

4-What is the implied interest rate in a treasury bon ($100,000) futures contract that settled at 100'16?  If interest rates increased by 1%, what would be the contract's new value?

5-Carter Enterprises can issue floating rate debt at LIBOR +2% or fixed rate debt at 10%, Brence Manufacturing can issue floating rate debt at LIBOR + 3.1% or fixed debt at 11%.  Suppose Carter issues floating rate debt and Brence issues fixed rate debt.  They are considering a swap in which Carter makes a fixed rate payment of 7.95% to Brence and Brence makes a payment of LIBOR to Carter.  What are the net payments of Carter and Brence if they engage in swap?  Would Brence be better off if it issued floating rate debt ir if it issued fixe rate debt and engaged in the swap?  Explain your answer.

6-The Zinn Company plans to issue $10,000,000 of 20 year bonds in June to help finance a new research and development laboratory.  The bonds will pay interest semiannually.  It is now November, and the current cost of debt to the high risk biotech companies is 11%.  However, the firm's financial manager is concerned tht interest rates will climb even higher in coming months.  The following data are available:

Fut ure Prices: Treasury Bonds-$100,000; Pts. 32nds of 100%

a. Use the given data to create a hedge against rising interest rates.

b. Assume that interest rates in general increase by 200 basis points.  How well did your hedge perform?

c. What is a perfect hedge? Are any real- world hedges perfect? Explain.