Author Question: Bestor Travel, Inc manufactures and sells high quality light weight luggage highly prized in the ... (Read 64 times)

Caiter2013 · **on:** Jul 11, 2018

Bestor Travel, Inc manufactures and sells high quality light weight luggage highly prized in the market for its style and durability. Use the information from Figure 13-1 and the Book value Plus Adjustment method to value the firm's equity.

A) 1,100,000
B) 1,200,000
C) 1,300,000
D) 1,400,000

Question 2

Identify three prominent theories that attempt to explain the term structure of interest rates.

What will be an ideal response?

vickyvicksss · **Reply #1 on:** Jul 11, 2018

Answer to Question 1

D
Explanation: D) BV + Adjustments = 1,200,000 + (750,000 - 550,000 ) + (100,000 - 60,000 ) + (180,000 - 220,000 ) = 1,400,000.

Answer to Question 2

Three possible theories may explain the shape of the term structure of interest rates at any point in time:
The Unbiased Expectations Theory: The theory says that the term structure is determined by an investor's expectations
about future interest rates.
The Liquidity Preference Theory: According to the theory, investors require maturity-risk premiums to compensate
them for buying securities that expose them to the risks of fluctuating interest rates.
The Market Segmentation Theory: The theory implies that the rate of interest for a particular maturity is determined
solely by demand and supply for a given maturity and that it is independent of the demand and supply for securities
having different maturities.