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FINANCE MAY 11, 2014 | PROFICIENT | LEAVE A COMMENT

I need it back in 2 hours Attachments: homework-4-B…..docx

FINANCE MAY 11, 2014 | PROFICIENT | LEAVE A COMMENT

Message body 1) The purple martin has annual sales of $687,400, total debt of $210,000, total equity of $365,000 and a profit margin of 5.20 percent, what is the ROA? A) 6.22 B) 6.48 C)7.02 D) 7.78 E) 9.79 2) You are borrowing $17,800 to buy a car. The terms of the loan call for a monthly payments of 5 years at 8.6 percent interest. 6) West automations has an inventoy turnover of 16 and an accounts payable turnover of 11. The AR period is 36 days what is the length of the cash cycle? 8) The bonds issued by stainless tubs bear at 6 percent coupon, payable semi annually. The bond matures in 11 years and have a $1000 face value. Currently the bonds sell for $989. What is the yield to maturity? 9) Your farther won a lottery years ago. The value of the winnings were $225,000 at the time. He invested this money such that it will provide annual payments of $12000 a year to his heirs. Forever. What is the rate of return? 11). You are purchasing a 30 year, zero coupon bond. The yield to maturity is 9.1 percent and the face value is $1000. What is the current maret price? 16) The her garden stock sells for $43.70 a share and has a rate of return of 11.6 percent. The company just paid an annual dividend of $1.42 per share. What is the divedends constant growth rate? 17) Cameron industries is expected to pay an annual dividend of $1.30 a share next month. The market price for the stock is $24.80 and the dividends constant growth rate is 3 percent p.a. What is the firms cost of equity?

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Pierce Publishing sells encyclopedias under two payment plans: cash or installment. Under the installment plan, the customer pays $25/month over 3 yr with interest charged on the balance at a rate of 17%/year compounded monthly. Find the cash price for a set of encyclopedias if it is equivalent to t…

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What is the difference between JOURNAL ENTRY & LEDGER?

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A Treasury bond is quoted at a price of 101:14 with a current yield of 7.236 percent. What is the coupon rate? a. 7.20 percent b. 7.28 percent c. 7.30 percent d. 7.34 percent e. 7.39 percent

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1.A $100 petty cash fund has cash of $15 and receipts of $80. The journal entry to replenish the account would include a credit to Cash Over and Short for $5. Cash for $85. Cash for $80. Petty Cash for $85. 2. Wright sells softball equipment. On November 14, they shipped $1,000 worth of softball uniforms…

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Given the following information of a proposed project: Cost = $3,400; estimated life = 3 years; estimated salvage value = $1,000; net income before taxes and depreciation = $2,000 per year; method of depreciation = MACRS (year 1: 33.33%; year 2: 44.44%; year 3: 14.82%; year 4: 7.41%); tax rate = 40 percent; required rate of return = 18 percent. What is the incremental cash flow for year 2?

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Absolute purchasing power parity states if the price of lumber is $10 a board foot in the U.S. the price of the same lumber in Canada should be C$6.45 in Canadian dollars per board foot if the exchange rate is C$1.55 per U.S dollar. True or False

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The idea that identical goods and services that are traded across national borders should have the same price in two countries after converting their prices into a common currency is called arbitrage. True or false?

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Research has generally indicated that which Efficient Market hypothesis is clearly not correct? a. weak, b. semi-strong, c. strong, d. two of the above

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Your company, which is financed entirely with common equity, plans to manufacture a new product, a cell phone that can be worn like a wristwatch. Two robotic machines are available to make the phone, Machine A and Machine B. The price per phone will be $250.00 regardless of which machine is used to …

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Week One Homework Assignment Please provide the work below in the spaces provided. You may adjust the space as necessary, but the original question must be above the answer and all work must be shown. 1-5: The rate of return on Cherry Jalopies, Inc., stock over the last five years was 17%, 11%, -2%, 3%, and 14%. Over the same period, the return on Straw Construction Companyâs stock was 16%, 18%, -6%, 1%, and 22%. Document Preview:

Week One Homework Assignment Please provide the work below in the spaces provided. You may adjust the space as necessary, but the original question must be above the answer and all work must be shown. 1-5: The rate of return on Cherry Jalopies, Inc., stock over the last five years was 17%, 11%, -2%, 3%, and 14%. Over the same period, the return on Straw Construction Companyâs stock was 16%, 18%, -6%, 1%, and 22%. What was the arithmetic average return on each stock over this period? 1-6: Using the information from the previous problem, calculate the variances and the standard deviations for Cherry Jalopies, Inc. and Straw Construction Company. 1-7: A particular stock has a dividend yield of 1.3%. Last year, the stock price fell from $56 to $49. What was the return for the year? 2-5: You have $22,000 and decide to invest on margin. If the initial margin requirement is 55%, what is the maximum dollar purchase you can make? 2-6: You buy 400 shares of stock at a price of $55 and an initial margin of 60%. If the maintenance margin is 30%, at what price will you receive a margin call? 2-10: You purchased a stock at the end of the prior year at a price of $81. At the end of this year the stock pays a dividend of $1.80 and you sell the stock for $97. What is your return for the year? Now suppose that dividends are taxed at 15% and long-term capital gains (over 11 months) are taxed at 30%. What is your after-tax return for the year? 3-2: You found the following stock quote for DRK Enterprises, Inc. at your favorite web site. You also found that the stock paid an annual dividend of $0.75, which resulted in a dividend yield of 1.3%. Assuming that the company has 95 million shares of stock outstanding and a PE ratio of 16, what was the net income for the most recent four quarters? DAILY YTD 52 WEEK Company Symbol Volume CloseChg %Chg %Chg High Low %Chg DRK Enterprises DRK 18,649,130 ?… Attachments: Week-One-Home….docx

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Technology Corp. is considering a $125,000 investment in a new marketing campaign which they anticipate will provide annual cash flows of $51,500 for the next 3 years. The firm has a 12% cost of capital. What should the analysis indicate to the firm’s managers a) IRR between 11% and 12% – accept the …

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Marvin currently has a balance of $1,192 in an account he has held for 14 years. He opened the account with an initial deposit of $800. What is the simple interest on the account? A. 3.5% B. 7.1% C. 2.3% D. 10.6%

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the file was my question and some ANS i want to explain that. Document Preview:

1/9/2012 49.94 22.04 2.37 4181 8.6851141183599215E-3 1.4732965009208118E-2 -2.8688524590163869E-2 1.7646342947547768E-2 1/3/2012 49.51 21.72 2.44 4108.5 5.8919138561560171E-3 8.3565459610027721E-3 2.9535864978902884E-2 1.2793965389735269E-2 12/28/2011 49.22 21.54 2.37 4056.6 -1.1845011041959513E-2 -1.4638609332113462E-2 -2.4691358024691377E-2 -2.0239590377741219E-2 12/19/2011 49.81 21.86 2.4300000000000002 4140.3999999999996 1.3840830449826983E-2 4.5432807269249129E-2 -0.11636363636363631 -4.5201000192345124E-3 12/12/2011 49.13 20.91 2.75 4159.2 5.9377559377559201E-3 9.5739588319768186E-4 2.9962546816479429E-2 -1.0421127765881557E-2 12/5/2011 48.84 20.89 2.67 4203 -1.4328960645812185E-2 1.1622276029055786E-2 -7.6124567474048513E-2 -1.9822761194029852E-2 11/28/2011 49.55 20.65 2.89 4288 9.1650143203348675E-2 9.4329623741388313E-2 7.8358208955223857E-2 7.622417990613152E-2 11/21/2011 45.39 18.87 2.68 3984.3 -4.9025769956002441E-2 -2.530991735537182E-2 -0.15457413249211349 -4.6133588700023896E-2 11/14/2011 47.73 19.36 3.17 4177 -3.750756200846958E-2 1.0438413361169066E-2 -3.3536585365853626E-2 -2.7813336436634469E-2 11/7/2011 49.59 19.16 3.28 4296.5 1.1421578625331476E-2 -0.12551346417161113 2.1806853582554468E-2 3.5972063254770116E-3 10/31/2011 49.03 21.91 3.21 4281.1000000000004 -1.8614891913530818E-2 1.0142923005993492E-2 -8.8068181818181837E-2 -1.6585119334757498E-2 10/24/2011 49.96 21.69 3.52 4353.3 5.0683491062040037E-2 6.3756743501716562E-2 0.11392405063291135 5.1039378063207845E-2 10/17/2011 47.55 20.39 3.16 4141.8999999999996 1.0526315789473085E-3 1.6450648055832597E-2 6.3973063973063946E-2 -1.5146471371504832E-2 10/10/2011 47.5 20.059999999999999 2.97 4205.6000000000004 2.7027027027027029E-2 4.37044745057232E-2 1.0204081632653145E-2 1.025727257440744E-2 10/3/2011 46.25 19.22 2.94 4162.8999999999996 1.5367727771679536E-2 2.2884513038850439E-2 2.4390243902438966E-2 3.8492241680387097E-2 9/26/2011 45.55 18.79 2.87 4008.6 5.123471036… Attachments: Assignment-Se….doc assignment-pt….xlsx

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“Assume that MM’s theory holds with taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 40% corporate tax rate. a. How much of the firm’s value is accounted for by the debt-generated tax shield? b. How much better off will UF’s a shareholder be if the firm borro…

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Customer Question Using data from our fictitious Company, AB 217 (from Unit 3), We will calculate the expect value of its stock using the Constant Growth Model (page 114): Po = D1/(r – g) To do that we will have to estimate the vales of r, g, and D1. To estimate the value of r we will use the Capital As…

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Find the NPV and PI of a project that costs $1,500 and returns $800 in year one and $850 in year two. Assume the projectâs cost of capitl is 8%

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Conch Republic can manufacture the new PDA for $200 each in variable costs. Fixed costs for the operation are estimated to run $4.5 million per year. The estimated sales volume is 70,000, 80,000, 100,000, 85,000, and 75,000 per each year for the next five years, respectively. The unit price of the new PDA will be $340. The necessary equipment can be purchased for $16.5 million and will be depreciated on a 5 year straight-line schedule. Net working capital investment for the PDAs will be $6,000,000 the first year of operations. Of course NWC will be recovered at the projects end. Conch Republic has a 35 percent corporate tax rate and a 12 percent required return. Shelly has asked Jay to prepare a report that answers the following questions: What is the IRR of the project? What is the NPV of the project, based on the required rate of return of 12%?

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Studebaker is eligible to put 12,000 before tax dollars each year into a tax deferred annuity (TDA). in order to invest in a TDA, however, he must have his salary reduced, and the case indicates that he can afford a reduction in his spendable income of 3,052 each year without disrupting his lifestyle. one investment option is to increase the amount placed into a TDA each year to the legal maximum of $12,000 and move funds from the money market to cover the resulting shortfall in studebaker spendable income. how much money will he need to transfer each year from the money market? TAX RATE IS 30% I NEED THIS ANSWERED BY TONIGHT.

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What financial statement are the following accounts on…balance or income? -Inventory -Long term debts -Marketable securities -Paid in capital in excess of par -preferred stock -preferred stock dividends -retained earnings -taxes

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The MacMillen Company has equal amounts of low-risk, average-risk, and high-risk projects. The firm’s overall WACC is 12%. The CFO believes that this is the correct WACC for the company’s average-risk projects, but that a lower rate should be used for lower-risk projects and a higher rate for higher…

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Risk affects all long term projects. The longer the lead time on a project, the greater the risk. The price of a barrel of oil has increased from $22.81 to $90.30 between 2002 and 2012 (Historical Crude Oil Prices). Gasoline prices increase approximately 3 cents a gallon for every dollar increase in…

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AQ&Q has EBIT of $2 million, total assets of $10 million, stockholdersâ equity of $4 million, and pretax interest expense of 10%. a. What is AQ&Qâs indifference level of EBIT? b. Given its current situation, might it benefit from increasing or decreasing its use of debt? c. Suppose we are t…

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Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A’s cost of capital is 10.0%, Division B’s cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division A’s projects are equally risky, as are all of Division B’s projects. However, the projects of D…

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Bosio Inc.’s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company’s cost of preferred stock for use in calculating th…

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Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. The longer a project’s payback period, the more desirable the project is normally considered to be by this criterion. One drawback of th…

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i want my answers in 10 hours

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Which one of the following actions best matches the primary goal of financial management? (Points : 3) increasing the net working capital while lowering the long-term asset requirements improving the operating efficiency, thereby increasing the market value of the stock increa…

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The Robinson Company had a cost of goods sold of 1,000,000 in 2011 and 1,200,000 in 2012. a) calculate the inventory turnover for each year. Comment on your findings. b) what would have been the amount of inventories in 2012 if the 2011 turnover ratio had been maintained?

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a firms sales is 500000,variable costs is $300000 and fixed cost is $100000 what isthe degree of operating leverage

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12. A Treasury note with a maturity of four years carries a nominal rate of interest of 10 percent. In contrast, an eight-year Treasury bond has a yield of 8 percent. a. If inflation is expected to average 7 percent over the first four years, what is the expected real rate of interest? b. If the inflatio…

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At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years? A. 6% B. 5% C. 7% D. 8% Need answer in under an hour.

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Compute the payback period for a project with the following cash flows, if the companyâs discount rate is 12%. Initial outlay = $450 Cash flows: Year 1 = $325 Year 2 = $65 Year 3 = $100 A. 3.43 years B. 3.17 years C. 2.88 years D. 2.6 years Need answer in under an hour

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question 1 – 5, please submit as excel file Attachments: Data-Case—N….pdf

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In mid – March 2007, the U.S. dollar equivalent of a euro was $1.3310. In July 2009, the U/S dollar equivalent of a euro $1.4116 Using the indirect quotation method, determine the currency per U.S dollar for each of these dates. Attachments: Data-Case—N….pdf

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This is one case study from chapter 8 of Financial Management for public, health and not for profit organizationa and three problems from chapter 7. Case study has been scanned in and is on the first three pages and the three questions from chapter 7 are after the case study. The appendix needed for the final problem in chapter 7 has been scanned in and is after the question Document Preview:

Please Look at all Three Pages- These were scanned in so the problem continues for the 3 pages This problem is from Financial Management for Public, Health, and not for profit organizations 3rd edition by Steven A Finkler (Chapter 8) Year is Chapter 7 Problems 7-29 Hospitals often have many different customers, not all whom make their payments on a timely basis. Millbridge hospital segments its customers into four groups: Medicare, Medicaid, insurance, and self-pay. The self-pay customers owe Millbridge hospital $2 million. Insurers owe twice that amount. Medicare and Medicaid owe $5 million and $3 million respectively. Half of Medicare receivable is current, 20% was billed more than 30 days but less than 61 days ago, and the balance was billed more than 60 days ago but less than 91 days. Medicaidâs obligation is 30% current, 30% more than 30 days but less than 61 days, 30% more than 60 but less than 91 days, and 10% more than 90 days. The insurance receivable is half current and half 31 to 60 days. The self-pay receivables are 25% current, 25% in the 31 to 60 day category, 25% in the 61-90 day and 25% over 90 days. Prepare an accounts receivable aging schedule by total dollars and by percent. 7-31 Billings Village is considering shifting its payroll period from twice a month to monthly. Total payroll for the year is $80 million. Billings can earn 6 percent on its invested money. How much would the village save from such a change? Should it shift its payroll period to monthly? 7-33 Meals for the homeless buys 30,000 large cans of green beans each year. The cost of each can of beans is $4. The cost to place an order for beans, including the time of the employee placing the order, shipping, and so forth, comes to $20 per order. The out of pocket carrying costs (for storage, etc) are .30 per can per year. In addition, Meals calculates its interest cost at 5%. How many cans should be ordered at a time? How many orders should there be each year? What are the… Attachments: Case-Study-Ch….docx

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consider an investment that pays 1000 certain at the end of each of the nest four years. if the investment costs 3500 and has a net present value of 74.26 then the four year rick free interest rate is closest to?/

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1)ABC inc. purchased a $2,000,000 building with a 25% down payment and signed a 30-year mortgage on October 1st2012. The mortgage is payable at the end of each month starting on October 31st2012. APR on the mortgage is 6%. Calculate the monthly payment.

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Question 1: Is it possible to have a portfolio of two securities whose s is less than the s of either of the two securities? Can you show an example to justify your position? Question 2: What is the significance of Ă in finance? Look up the Ă of IBM, Ford, and Microsoft. Which company presents the most risk for the investors, and why?

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A trademark is an example of a nebulous asset. a productive asset. an intangible asset. none of these. Which of the following cannot be engaged in managing the business? a limited partner a sole proprietor a general partner none of these One reason for the existence of agency problems between managers and share holders is that shareholders have unreasonable expectations about managerial performance. managers know how to manage the firm better than shareholders. there is a separation of ownership and control of the firm. none of these. Document Preview:

A trademark is an example of a nebulous asset. a productive asset. an intangible asset. none of these. Which of the following cannot be engaged in managing the business? a limited partner a sole proprietor a general partner none of these One reason for the existence of agency problems between managers and share holders is that shareholders have unreasonable expectations about managerial performance. managers know how to manage the firm better than shareholders. there is a separation of ownership and control of the firm. none of these. Which corporate officer, when he or she is guilty of serious misconduct, can subject the firm to the most serious losses in financial wealth? Chief Risk Officer CEO CFO Chief Technology Officer _____________occur(s) when one party in a business transaction has information that is unavailable to the other parties in the transaction. Which of the following factors or activities can be controlled by the management of the firm? Capital budgeting. The matching principle calls for the accountant of a firm to On June 23, 2008, Mikhal Cosmetics sold $250,000 worth of its products to Rynex Corporation, with the payment to be made in 90 days on September 20. The goods were shipped to Rynex on July 2. The firm’s accountants should recognize the sale on Trekkers Footwear bought a piece of machinery on January 1, 2006 at a cost of $2.3 million, and the machinery is being depreciated annually at an amount of $230,000 for 10 years. Its market value on December 31, 2008 is $1.75 million. The firm’s accountant is preparing its financial statement for the fiscal year end on December 31, 2008. The asset’s value should be recognized on the balance sheet at Which one of the following does NOT belong on an income statement? Maddux, Inc., has completed its fiscal year and reported the following information. The company had current assets of $153,413, net fixed assets of… Attachments: Midterm-Manag….doc

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Need answers for those questions Attachments: Scan0017.jpg Scan0018.jpg

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The principle is $320,000 the apr is 7.25% t1 is 1- may t2 is 15-aug interest is $6,737.53. What is the future valu and t in years

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Find Karl Pearsonâs correlation coefficient between the sales and expenses from the data given below:

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Assignment 2 is due after you complete Lessons 5 to 8. It is worth 20% of your final grade. Prepare your responses to these assignment problems in a word processing file; put financial data in a spreadsheet file. As you complete the assignment problems for each lesson, add your responses to these files. Do not submit your answers for grading until you have completed all parts of Assignment 2. Note: In assignments, show all calculations to 4 decimal places. Lesson 5: Assignment Problems 5.1

Assume you have $1 million now, and you have just retired from your job. You expect to live for 20 years, and you want to have the same level of consumption (i.e., purchasing power) for each of these 20 years, after adjusting for inflation. You also wish to leave the purchasing power equivalent of $100,000 today to your kids at the end of the 20 years as a bequest (or to pay them to take care of you). You expect inflation to be 3% per year for the next 20 years, and nominal interest rates are expected to stay around 8% per year.

A.

Calculate the actual amount of consumption, in nominal dollars, using the stated assumptions.

i.

How much do you need for your kids?

ii.

If you plan to consume $1.03 in year 1, how much will you need to have to keep the same real consumption in year 2? In year 10? In year 20?

iii.

How much, in nominal dollars, will $1 of retirement funds earn in year 1? Year 2? Year 10? Year 20?

iv.

In an Excel spreadsheet (or in a manual table), calculate the following:

a.

annual investment earnings for each year

b.

total savings after investment earnings for each year

c.

subtract annual consumption from total savings each year

d.

by trial and error, or with the Goal Seek command, determine the amount of consumption that will give you exactly $100,000, in today’s purchasing power, at the end of 20 years

Hint: You will need to make your annual consumption column dependent on the inflation rate, your investment earnings will grow at the nominal rate, and the bequest of $100,000 will grow at the inflation rate.

B.

Do the calculation again using real rates, and setting inflation to equal 0. If you set up your Excel spreadsheet carefully, you should be able to set the inflation rate to equal 0 and enter the real rate of return as the investment earning rate. Feel free to use the spreadsheet below to help you answer this question.

i.

What is the amount of real consumption in year 1? In year 2? In year 10? In year 20?

ii.

Show that this is consistent with your calculation using nominal rates.

iii.

How much, in real dollars, does that leave for your kids?

iv.

Show that your bequest is consistent with the nominal rate results above. (30 marks)

5.2

A.

Linus is 18 years old now, and is thinking about taking a 5-year university degree. The degree will cost him $25,000 each year. After he’s finished, he expects to make $50,000 per year for 10 years, $75,000 per year for another 10 years, and $100,000 per year for the final 10 years of his working career. If Linus lives to be 100, and if real interest rates stay at 5% per year throughout his life, what is the equal annual consumption he could enjoy until that date?

B.

Linus is also considering another option. If he takes a job at the local grocery store, his starting wage will be $40,000 per year, and he will get a 3% raise, in real terms, each year until he retires at the age of 53. If Linus lives to be 100, what is the equal annual consumption he could enjoy until that date?

C.

From strictly a financial point of view, is Linus better off choosing option A or B? (10 marks)

5.3

Are you better off playing the lottery or saving the money? Assume you can buy one ticket for $5, draws are made monthly, and a winning ticket correctly matches 6 different numbers of a total of 49 possible numbers. The probabilities: In order to win, you must pick all the numbers correctly. Your number has a 1 in 49 chance of being correct. Your second number, a 1 in 48 chance, and so on. There are exactly 49 x 48 x 47 x 46 x 45 x 44 = 10,068,347,520 ways to pick 6 numbers from 49 options. But the order in which you pick them does not matter, so you actually have a few more ways to win. You can pick 6 different numbers in exactly 6 x 5 x 4 x 3 x 2 x 1 = 720 orders of choice. Any one of those orders would still win the lottery. Putting this all together, your ticket has 720/10,068,347,520 = 1/13,983,816 chance of winning. This equates to a .000000071 percentage chance. If you played one ticket every month from age 18 to age 65, you would have 47 x 12 = 564 plays. Your odds of not ever winning would be calculated using a binomial distribution to be .9999599568, meaning your chances of winning would be 1 – .9999599568 = .0000400432. So, if the lottery winnings averaged $10 million over this time period, your expected return would be less than .0000400432 x $10 million = $400.43. (It’s less than $400.43 because your 564 plays are spread out over the next 47 years, so the present value of these future plays would be significantly less than if you were able to play all 564 immediately. The $400.43 assumes you play all 564 plays today, which makes it the highest possible expected value.) REQUIRED:

A.

What would your $400.43 be worth if you invested it at 1% real interest for 47 years?

B.

If, instead, you wrote down your 6 numbers on a piece of paper, and deposited your $5 in a bank at 1% real interest, how much would you have at the end of the first year?

C.

If you did this every year for 47 years, how much would you have at age 65?

D.

If you earned 5% real interest on your deposits, how much would you have at age 65?

E.

Which option would make you better off at age 65? How many times better off? (10 marks)

5.4

Use the Excel spreadsheet named “LeasevsBuyCCA.xls” to answer the following question. You may choose to answer the question without using the spreadsheet, but be very careful to show all work, so your marker can follow your calculation and award part marks as necessary. You want to buy a new car, but you’re not sure whether you should lease it or buy it. You can buy it for $50,000, and you expect that it will be worth $20,000 after you use it for 3 years. Alternatively, you could lease it for payments of $650 per month for the 3-year term, with the first payment due immediately. The lease company did not tell you what interest rate they’re using to calculate the monthly payments, but you know you could borrow money from your banker at an annual percentage rate (APR) of 8%.

A.

Calculate the present value of the lease payments, assuming monthly compounding at the given APR of 8%.

B.

Calculate the present value of the $20,000 salvage value, again using monthly compounding and the given APR of 8%. Which option do you prefer, lease or buy?

C.

Calculate the amount of the salvage value which would make you indifferent between leasing and buying.

D.

If you were able to use this car 100% for business, rendering the lease payments tax-deductible, or alternatively, allowing you to deduct depreciation using straight-line depreciation (depreciated to expected salvage value) and assuming your tax rate is 40%, would you prefer to buy or lease the car? (10 marks)

Do not submit these questions for grading until you have completed all parts of Assignment 2, which is due after Lesson 8. Lesson 6: Assignment Problems You may find it helpful to use the Excel file named “Chapter 6 template.xls” to answer the following questions. You may choose to answer the questions without using the spreadsheet, but be very careful to show all work, so your marker can follow your calculation and award part marks as necessary. In order to ensure that you know how the spreadsheet works, it is recommended that you replicate table 6.5 from page 182 of your textbook before proceeding to answer the following questions. (Note that a completed spreadsheet for Table 6.5 is included with the Excel file as a separate worksheet, so you can check your work.) 6.1

You and your friends are thinking about starting a motorcycle company named Apple Valley Choppers. Your initial investment would be $500,000 for depreciable equipment, which should last 5 years, and your tax rate would be 40%. You could sell a chopper for $10,000, assuming your average variable cost per chopper is $3000, and assuming fixed costs, such as rent, utilities and salaries, would be $200,000 per year.

A.

Accounting breakeven: How many choppers would you have to sell to break even, ignoring the costs of financing?

B.

Financial breakeven: How many choppers would you have to sell to break even, if you required a 15% return? (Hint: Use the 15% as the discount rate and calculate net present value. In Excel, you may want to use the Goal Seek command, or simply use trial and error to find the correct amount.)

C.

Assuming you could sell 60 choppers per year, what would be your IRR?

D.

Assuming you could sell 60 choppers per year, what would your selling price have to be to generate a net present value of $150,000 at a 15% discount rate?

E.

If you could sell 60 choppers in the first year, and your sales volume increased by 5% each year until the end of year 5, what would the net present value be at a 15% discount rate?

F.

If you need to invest working capital equal to 10% of the next (coming) year‘s sales revenue, what would be the effect on the net present value of the project? Do you think that working capital investments always reduce the net present value of projects? (Assume a 15% discount rate, and sales volume increases by 5% each year.) (20 marks)

6.2

Fill in the missing items in the following table. Assume that the real interest rate is 3% per year, and inflation is expected to be constant at 2% per year. Year

Nominal cash flow

Real cash flow

0

–100,000

–100,000

1

+ 12,000

?

2

+22,000

?

3

+15,000

?

4

+10,000

?

Net present value

?

?

(10 marks)

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.It is the beginning of 2012 and Kraft foods is selling at $37.36 per share.Earnings per share for 2012 are forecast at $2.60, and the projected dividend per share for the year is $1.16.Though the present price earnings ratio is 15.6, you believe it will decrease to 14.0 by the end of 2012.Kraftâs beta is estimated to be 0.65, and you estimate the expected return on the market to be 10 percent, and the risk free rate at 4 percent.Use the CAPM to estimate a fair rate of return on Kraft for the year and the earnings multiplier approach to make an investment decision with respect to whether Kraftâs common stock is a good investment or not at present.Explain your result.

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Shares of Stock Annualized Rates of Return- Given the information below, compute annualized returns: A- Income $2—Price Change $6—Initial Price $29—Time Period 15months Document Preview:

I have the following questions to answer from the end of each chapter in book listed below: Required Resources Melicher, R. W., & Norton, E. A. (2011). Introduction to finance: Markets, investments, and financial management (14th ed.). Hoboken, NJ: John Wiley & Sons. ?Homework ? o Chapter 1: E1, E2, and E3 o Chapter 2: P2, P5, and P7 o Chapter 3: P1, P4, and P7 o Chapter 4: P1, P4, and P5 Homework Chapter 5: P1, P4, and P5 Chapter 6: P1, P2, and P7 Chapter 7: P1, P3, and P4 Chapter 8: P1, P2, and P3 Homework o Chapter 9: P1, P2, P3, and P4 o Learning Extension 9: P2 and P3 o Chapter 10: P2, P4, P6, and P26 o Learning Extension 10: P1 and P2 o Homework Chapter 11: P1 and P2 Chapter 12: P1, P2, P3, and P4 Chapter 13: P1, P2, and P5 Chapter 14: P2, P3, and P7 Homework o Chapter 15: P2, P3, and P4 o Chapter 16: P1, P2, and P7 o Chapter 17: P2, P4, P5 o Chapter 18: P1, P4, P8 Attachments: Finance-20que….docx

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which of the following is not a derivative instrument a.contract to sell b. option agreement c. interest only d. principal only Document Preview:

Week 7 : Week 7 – Exam #1 Time Remaining: 1. What phrase is often used interchangeably with the phrase market capitalization? (Points : 1) Market value Open Interest Trading volume Notional value 2. Assume that an investor lends 100 shares of Jiffy, Inc. common stock to a short seller. The bid-ask prices are $32.00 – $32.50. When the position is closed the bidask prices are $32.50 – $33.00. The commission rate is 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. Calculate the gain or loss to the lender. Assume the lender is not subject to a bid-ask loss or commissions. (Points : 1) $164.00 loss $100.00 gain $100.00 loss $164.00 gain 3. During the growing season a corn farmer sells short corn futures contracts in an amount equal to her crop. If upon harvesting and selling her crop she maintains the contracts, she is then considered a: (Points : 1) Speculator Arbitrager Hedger None of the above 4. What kind of risk does not disappear when spread across many investors? (Points : 1) Diversifiable Catastrophic Predictive Nondiversifiable 5. Who from the following list would be considered a speculator by entering into a futures or options contract on commodities?(Points : 1) Corn delivery truck driver Food manufacturer Farmer None of the above 6. Assume that you purchase 100 shares of Jiffy, Inc. common stock at the bid-ask prices of $32.00 – $32.50. When you sell the bid-ask prices are $32.50 – $33.00. If you pay a commission rate of 0.5%, what is your profit or loss? (Points : 1) $32.50 loss $16.25 loss $0 $32.50 gain 7. Which of the following is not a derivative instrument? (Points : 1) Installment sales agreement Option agreement to buy land Contract to sell corn Mortgage backed security 8. According to trading volume data tabulated for 2002, which international futures exchange market experienced the highest total trading volume in the… Attachments: 512-exam1.docx

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the deadline is sunday, december 2 at 4 am. philadelphia time. Document Preview:

Post your study in the assignment as a Word document. 3 pages. For your assigned company( ExxonMobil) and five competitors compute the following ratios discussed: As a reminder my assigned company is: ExxonMobil Corporation. Net Profit Margin Return on Equity Return on Assets Price-Earnings Ratio Discuss your findings from the calculations. For your company examine the financial statement notes from the most recent annual report, discuss any issues that seem out of the ordinary. Finally from what you learned in the preview chapter, give the beta of your firm and the five firms listed as competitors. Discuss the risk of your firm compared to its competitors and speak to the industries exposure to systematic and unsystematic risk. Securities Study One MBA 7200 Attachments: Securities-20….docx

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help with my finance assingment – Finance 215 Assume at most two decimal fractions in your bottom line answers and assume, unless otherwise stated, that income (cash inflow) and payments (cash outflow) are at period end Do all a p Document Preview:

Finance 215 Assume at most two decimal fractions in your bottom line answers and assume, unless otherwise stated, that income (cash inflow) and payments (cash outflow) are at period end Do all a problem’s subparts, e.g., for problem 3, 3.1 and 3.16 1.Deternine if and why the firm should (not) replace the existing equipment with the new more efficient, pollution-free equipment. Firm: 30% tax rate 8% WCC Existing equipment: Purchased two years ago for 250,000 Can be sold at year-end two for 100,000 Had a 7 year life MACRS {.143, .245, .175, .125, .089, .089, .089, .045} for 7 year life assets New equipment: Can be purchased for 300,000 Has a 5 year life MACRS {.200, .320, .192, .115, .115, .058} for 5 year life assets Projected operating income before depreciation Year-end 1 2 3 4 5 6 Existing 36,000 26,000 19,000 18,000 16,000 -2,000 New 100,000 96,000 80,000 72,000 62,000 43,000 Year six for old includes polution remediation costs incurred with deinstallation 2. Complete the table for each condo home loan option. 15 year loan term $150,000 selling price Points are a finance charge, assessed on the loan amount, and paid upfront, e.g., 1 point is 1% Fixed interest rate and, excepting deferral periods and ballon, equally monthly payments Quoted rate is the nominal rate, not necessarily the APR Loan amount = selling price (1 – down payment %) = selling price – down payment Option Down payment % Points Quoted rate Other A 5 5 7.0% None B 10 0 7.5% $10,000 balloon payment at year-end 15 C 30 0 7.9% No payments for first 6 months For Option C, no payments occur for the first half year and the loan is amortized over the ensuing 14.5 years. For Option B, the last payment includes the monthly amount plus the balloon amount. Option Monthly payment Total interest and points APR A B C 3. Given the ensuing financial statements, answer the following. 3.1 Quick/acid ratio 3.2 Debt ratio 3.3 … Attachments: Finance-215-a….docx

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Please look at Excel files for answers to questions Question 1 of 17

4.0 Points

Which column of financial data represents a railroad company?

A. A

B. B

C. C

D. D

E. E

Reset Selection Question 2 of 17

4.0 Points

Which of the columns provides data for the food distributor?

A. A

B. B

C. C

D. D

E. E

Reset Selection

Question 3 of 17

4.0 Points

Which column provides data for the internet service provider?

A. A

B. B

C. C

D. D

E. E

Reset Selection Question 4 of 17

4.0 Points

Which column provides data for the auto parts retailer?

A. A

B. B

C. C

D. D

E. E

Excel file 2 Part 2 of 6 – Tru/False

The attached table provides financial ratio information for the BCS company. Determine whether each of the following statements are either true (supported by the information) or false (not supported by the information). Attachments Supplemental 5-8.xlsx

42 KB

Question 5 of 17

4.0 Points

The company is performing poorly due to lack of sales volume.

True

False

Reset Selection Question 6 of 17

4.0 Points

The company is performing poorly due to overpaying for an acquisition.

True

False

Reset Selection Question 7 of 17

4.0 Points

The company is overpricing its products.

True

False

Reset Selection Question 8 of 17

4.0 Points

The company is poorly managing its customer credit policies.

True

False

Excel File 3 Short Answer Question 9 of 17

8.0 Points

Identify and comment on the similarities and/or differences in the growth strategies of each company. Support your answer with evidence from the financial statements and ratios.

Question 10 of 17

8.0 Points

Comment on the successes and/or failures of the growth strategies that you observed and described in the previous questions. Support your answer with evidence from the financial statements and ratios.

Question 11 of 17

8.0 Points

Based on an analysis of the financial statements and ratios, could you conclude that the locations, inventory mix, and overall quality of the shopping environment are better for one company than for the other? What evidence supports your answer?

Question 12 of 17

8.0 Points

Based on an analysis of the financial statements and ratios, which company appears to be operating more efficiently? Support your answer with evidence from the financial statements and ratios.

Question 13 of 17

8.0 Points

To which company would you assign a higher credit rating? What is your basis for doing so? Excel- File 4 Question 14 of 17

10.0 Points

Calculate the value of the net cash flow that would be used in forecasting for the year 2008 in the attached spreadsheet. Enter your answer in the spreadsheet and upload it when you are done. Excel File 5

Question 15 of 17

10.0 Points

Complete the forecast using the file attached to this part of the exam. Upload your file when done.

Question 16 of 17

4.0 Points

Explain the meaning of the plug and EFN values in the forecast that you uploaded. Attachments: Excel-File-1-….xlsx Excel-File-2-….xlsx Excel-File-3-….xlsx Excel-File-4-….xlsx Excel-File-5-….xlsx

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The problems is worked out 80 percent of the way — I need to last two steps…. Document Preview:

8.8. Belgium Car Rental plans to start its business by buying 10 cars at the average price of $17,000 each, depreciating them completely over 6 years using the straightline method. It will rent space in a parking lot for $200 a month, paying the rent in advance each month. Belgium expects that it will rent six cars on an average day, charging $45 per day per car. The maintenance expense for each car is $50 a month. After 6 years, Belgium will sell the cars at 30% of the original value. Belgium receives all the income and pays all the bills, (except rent) at the end of each month, but it pays the taxes once a year. Its income tax rate is 30% and it will use 15% as the discount rate. Assume that there are 30 days in a month. Is it a worthwhile project for Belgium? NPV = $126,629.66, yes ? Solution: 1. Initial investment $17000* 10 cars = -$170,000 2 . PV of Tax benefits of depreciation for 6 years, t = .3, D = 170,000/6, = =$32168.10 WRA : sum[.3*(17000*10)/6/1.15^i,{i,1,6}] 3 . PV of renting parking spaces = = -$9576.73 -sum[200*/1.0125^i,{i,0,71}] 4. PV of after tax paid on rent = = -$2724.83 Annual Cash flows WRA: -sum[(200*12)(.3)/1.15^i,{i,1,6}] 5. PV of income 6 rental cars, 6 cars/day, $45/car/day, 30 days/month, and maintenance, 10 cars @ $50/car/month = 6*45*30 – 10*50 = $7600 per month = $359422.80 WRA: sum[7600/1.0125^i,{i,1,72}] 6. PV of annual taxes paid on rental income t=.3 = WRA: sum[7600*.3/1.15^i,{i,1,6}] 7. PV of resale 170000*3 = 51,000 PV of resale = = $57902.58 One time Cash flow. sum[5100*10*(1-.3)/1.15^i,{i,1,6}] 8. PV( all cash flows) Notes Professors Notes: This is the skeleton solution. Add more details to it. 1 Buy the cars, 10 cars at $17,000 each, = -170,000 ?2 PV of tax benefit of depreciation for 6 years, t = .3, D = 170,000/6, = 32,168.10? 3 PV of monthly rent paid for parking spaces, in advance, $200 per month, = -9,576.73? 4 PV of annual tax benefit of rents, t = .3, R = 200*12, =… Attachments: 8.8.docx

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Questioned attached Attachments: Finance-Assig….docx

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i want to fill out my application for university, and i have 5 questions i want you to complete it please. writesomethinggood. i want them to accept me Document Preview:

* The Questions below are required as part of your application. Please try to limit each of your responses to approximately 200 words. It is highly recommended you upload a document from your PC into the “upload” section of this application. List your name and application program at the top of your uploaded document. How will the MBA/MS degree enhance your career plans? Project the kinds of positions you anticipate having five years after earning the degree. What experiences have you had that form the foundation of your goals? Give a candid appraisal of yourself. Include some discussion of your strengths and weaknesses. Discuss three of your achievements or accomplishments. Describe your level of commitment to education and the ways in which you might make a special contribution to the learning experience of others. Attachments: The-Questions….docx

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i want to fill out my application for university, and i have 5 questions i want you to complete it please. Document Preview:

* The Questions below are required as part of your application. Please try to limit each of your responses to approximately 200 words. It is highly recommended you upload a document from your PC into the “upload” section of this application. List your name and application program at the top of your uploaded document. How will the MBA/MS degree enhance your career plans? Project the kinds of positions you anticipate having five years after earning the degree. What experiences have you had that form the foundation of your goals? Give a candid appraisal of yourself. Include some discussion of your strengths and weaknesses. Discuss three of your achievements or accomplishments. Describe your level of commitment to education and the ways in which you might make a special contribution to the learning experience of others. Attachments: The-Questions….docx

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I have the following questions to answer from the end of each chapter in book listed below: Required Resources Melicher, R. W., & Norton, E. A. (2011). Introduction to finance: Markets, investments, and financial management (14th ed.). Hoboken, NJ: John Wiley & Sons. Homework oChapter 1: E1, E2, and E3 oChapter 2: P2, P5, and P7 oChapter 3: P1, P4, and P7 oChapter 4: P1, P4, and P5 Homework Chapter 5: P1, P4, and P5 Chapter 6: P1, P2, and P7 Chapter 7: P1, P3, and P4 Chapter 8: P1, P2, and P3 Homework oChapter 9: P1, P2, P3, and P4 oLearning Extension 9: P2 and P3 oChapter 10: P2, P4, P6, and P26 oLearning Extension 10: P1 and P2 oHomework Chapter 11: P1 and P2 Chapter 12: P1, P2, P3, and P4 Chapter 13: P1, P2, and P5 Chapter 14: P2, P3, and P7 Homework oChapter 15: P2, P3, and P4 oChapter 16: P1, P2, and P7 oChapter 17: P2, P4, P5 oChapter 18: P1, P4, P8 See attachement please Attachments: Finance-20que….docx

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Problem Set 2 1. Thomas Franklin arrived at the following tax information: Gross salary, $46,660 Interest earnings, $225 Dividend income, $80 One personal exemption, $3,400 Itemized deductions, $7,820 Adjustments to income, $1,150 What amount would Thomas report as taxable income? 2.What would be the net annual cost of the following checking account? Monthly fee, $3.75; processing fee, 25 cents per check; checks written, an average of 22 a month. 3. What would be the average tax rate for a person who paid taxes of $4,864.14 on a taxable income of $39,870? 4. Document Preview:

Problem Set 2 1. Thomas Franklin arrived at the following tax information: Gross salary, $46,660 Interest earnings, $225 Dividend income, $80 One personal exemption, $3,400 Itemized deductions, $7,820 Adjustments to income, $1,150 What amount would Thomas report as taxable income? 2.What would be the net annual cost of the following checking account? Monthly fee, $3.75; processing fee, 25 cents per check; checks written, an average of 22 a month. 3. What would be the average tax rate for a person who paid taxes of $4,864.14 on a taxable income of $39,870? 4. A payday loan company charges 4 percent interest for a two-week period. What would be the annual interest rate from that company? 5. What is the annual opportunity cost of a checking account that requires a $350 minimum balance to avoid service charges? Assume an interest rate of 6.5 percent. Problem Set 3 Louise McIntyre’s monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for VISA, MasterCard, and Discover card are $35, $30, and $20, respectively. Her monthly payment on an automobile loan is $285. What is Louise’s debt payments-to-income ratio? Is Louise living within her means? 2. Calculating Debt Payments – to – Income Ratio. Suppose that your monthly net income is $2,400. Your monthly debt payments include your student loan payment, a gas credit card and they total $360. What is your debt payments – to – income ratio? 3.Dave borrowed $500 for one year and paid $50 in interest. The bank charged him a $5 service charge. A- What is the finance charge on this loan? B- Dave borrowed $500 on January 1, 2006, and paid it all back at once on December 31, 2006. What was the APR? C- If Dave paid the $500 in 12 equal monthly payments, what is the APR? 4. Calculating Simple Interest on a Loan. Damon… Attachments: Problem-Set-2….docx

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Old Alfred Road, who is well-known to drivers on the Maine Turnpike, has reached his seventieth birthday and is ready to retire. Mr. Road has no formal training in finance but has saved his money and invested carefully. Mr. Road owns his home—the mortgage is paid off—and does not want to move. He is a widower, and he wants to bequeath the house and any remaining assets to his daughter. He has accumulated savings of $180,000, conservatively invested. The investments are yielding 9% interest. Mr. Road also has $12,000 in a savings account at 5% interest. He wants to keep the savings account intact for unexpected expenses or emergencies. Mr. Road’s basic living expenses now average about $1,500 per month, and he plans to spend $500 per month on travel and hobbies. To maintain this planned standard of living, he will have to rely on his investment portfolio. The interest from the portfolio is $16,200 per year (9% of $180,000), or $1,350 per month. Mr. Road will also receive $750 per month in Social Security payments for the rest of his life. These payments are indexed for inflation. That is, they will be automatically increased in proportion to changes in the consumer price index. Mr. Road’s main concern is with inflation. The inflation rate has been below 3% recently, but a 3% rate is unusually low by historical standards. His Social Security payments will increase with inflation, but the interest on his investment portfolio will not. What advice do you have for Mr. Road? Can he safely spend all the interest from his investment portfolio? How much could he withdraw at year-end from that portfolio if he wants to keep its real value intact? You do NOT need to provide specific calculations, but explain how you would do the necessary calculations to advise Mr. Road using the concepts presented in the current and previous weeks. Since 2005, Facebook has enjoyed spectacular success. By all accounts it is the most successful social media website. From initial funding by Mark Zuckerberg and Eduardo Saverin, to Angel Investors, to Accel Investment and Microsoft infusion of $240 million, Facebook grew to a staggering valuation by Goldman Sachs of an amazing $50 billion. There seemed to be no end to the profitability and growth (over 900 million users) to Facebook. To increase profitability and raise additional capital for expansion of its current technology and purchase of other threats/opportunities such as Instagram, Facebook made the decision to file for an Initial Public Offering (IPO) on February 1, 2012. This long-awaited announcement gave investors hope that the underwriter value of their shares ($38 each and pricing the company at around $104 billion) would see stock valuation increase immediately, as Linkedin (+109%); Groupon (+31%); and Pandora (+9%) did on their first day of public trading. Clearly, this seemed to be an easy bet—nothing seemed to be able to limit the quick opportunity to make profit for the investor. However, the appreciation that investors hoped for did not materialize. In fact, as of July 17, 2012, Facebook stock price was at $28.09, roughly $10 per share less than its initial IPO price only 4 months earlier. The events that led to this disappointment have left major shareholders skittish and investors weary. To restore confidence in the investment potential of the company, further actions will obviously be necessary. For this assignment, you are tasked with writing a letter to the Board of Directors. Taking on the position of the CEO, your letter must be convincing so the Board has restored confidence that you are in touch with the issues and can take the necessary steps to significantly enhance valuation. Carefully explain your perspective on the IPO. From whose perspective was the IPO a failure and why? From whose perspective was it a success and why? (This will require some research on your part.) What is your strategy for quickly restoring value and increasing the stock price? What is your longer term strategy e.g., diversification, additional cash flows from proposed new programs or projects? (Using what you learned in Week 2, project the future value of any investments you recommend.) Using what you learned about specific and market risk in Module 4, how can investor risk be minimized? Be sure to employ convincing statistics and/or figures to support your arguments. You can make up numbers for your calculations on diversification and new programs/projects, but your answer must be logical and consistent with what you’ve learned in the course. For example, if you recommend a new project that would enhance shareholder value, you need to consider and calculate the opportunity cost of that action. Write your letter in standard business letter format to the Facebook Board of Directors. Your letter is not to exceed 8 pages in length, with a precise Executive Summary at the beginning and a compelling conclusion at the end.

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Problem 10.14 Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,632,239. have a life of five years, and would produce the cash flows shown in the following table. Year Cash Flow 1 $408,818 2 -236,789 3 634,133 4 750,060 5 754,902 What is the NPV if the discount rate is 16.09 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) NPV is $ Problem 11. Document Preview:

Problem 10.14 Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,632,239. have a life of five years, and would produce the cash flows shown in the following table. Year Cash Flow 1 $408,818 2 -236,789 3 634,133 4 750,060 5 754,902 What is the NPV if the discount rate is 16.09 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) NPV is $ Problem 11.20 Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.10 million. This investment will consist of $2.50 million for land and $9.60 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.14 million, $2.46 million above book value. The farm is expected to produce revenue of $2.09 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) NPV $ The project should be Accepter OR rejected? Problem 11.24 Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountainâs opportunity cost of capital is 15.7 percent, and the costs and values of investments made at different times in the future are as follows: Year Cost Value of Future Savings (at time of purchase) 0 $5,000 $7,000 1 4,400 7,000 2 3,800 7,000 3 3,200 7,000 4 2,600 7,000 5 2,000 7,000 Calculate the NPV of each choice. (Round answers to the nearest whole dollar,… Attachments: Week-6-Assign….docx

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Multiple compounding periods (FV): Carlyn Botti wants to invest $3,500 today in a money market fund that pays quarterly interest at 5.5 percent. She plans to fund a scholarship with the proceeds at her alma mater, Towson University. How much will Carlyn have at the end of seven years? Document Preview:

Multiple compounding periods (FV): Carlyn Botti wants to invest $3,500 today in a money market fund that pays quarterly interest at 5.5 percent. She plans to fund a scholarship with the proceeds at her alma mater, Towson University. How much will Carlyn have at the end of seven years? The U.S. Treasury has issued 10-year zero coupon bonds with a face value of $1,000. Assume that coupon payments are normally semiannual. What will be the current market price of these bonds if the opportunity cost for similar investments in the market is 6.75 percent? PV of dividends: Kleine Toymakers is introducing a new line of robotic toys, which it expects to grow their earnings at a much faster rate than normal over the next three years. After paying a dividend of $2.00 last year, it does not expect to pay a dividend for the next three years. After that Kleine plans to pay a dividend of $4.00 in year 4 and then increase the dividend at a rate of 10 percent in years 5 and 6. What is the present value of the dividends to be paid out over the next six years if the required rate of return is 15 percent? Gwen purchased a stock one year ago for $25, and it is now worth $31. The stock paid a dividend of $1.50 during the year. What was the stock’s rate of return income during the year? The expected return for Stock V is 24.5 percent. If we know the following information about Stock Z, then what is the probability of the Dynamite state of the world occurring? Return Probability Poor 0.15 0.2 Lukewarm 0.28 0.7 Dynamite! 0.19 ? Attachments: questions-222….docx

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1. The present value of any cash flow stream will ______ if the rate of interest _______. 2. If the rate of interest increases, then the future value of any given future cash flow stream will ______. 3. Consider the following CF’s: a single CF at t = 8 of $2,500 and a single CF at t = 12 of $4,000. Calculate the FV of these CF’s at time t = 20 if the rate of interest is 6.4percent compounded each period. 4. Consider the following CF’s: a single CF at t = 8 of $2,500 and a single CF at t = 12 of $4,000. Calculate the PV of these CF’s at time t = 0 if the rate of interest is 6.4percent compounded each period. 5. Consider the following CF’s: a single CF at t = 8 of $2,000, a single CF of $4,500 at t = 15, and a single CF at t = 19 of $7,000. Calculate the FV of these CF’s at time t = 30 if the rate of interest is 8.4-percent compounded each period.

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Pearson Brothers recently reported an EBITDA of 7.5 million and net income of 1.8 million.?It had 2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?

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Week 7 Assignment 2 Submission If you are using the Blackboard Mobile Learn iOS App, please click “View in Browser” Click the link above to submit your assignment. Students, please view the “Submit a Clickable Rubric Assignment” in the Student Center. Instructors, training on how to grade is within the Instructor Center. Assignment 2: Financial Project Due Week 7 and worth 55 points Five (5) years ago, you bought a house for $171,000, with a down payment of $30,000, which meant you took out a loan for $141,000. Your interest rate was 5.75% fixed. You would like to pay more on your loan. You check your bank statement and find the following information: Escrow payment

$261.13

Principle and Interest payment

$822.84

Total Payment

$1,083.97

Current Loan Balance

$130,794.68

Write a one to two (1-2) page paper in which you address the following: Part 1 With your current loan, explain how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25. Decide whether or not it would be reasonable to do this if you currently meet your monthly expenses with less than $100 left over. (a)Explain your strategy for solving the problem. (b)Present a step-by-step solution of the problem. (c)Clearly state your answer to Part 1. What is your decision? Part 2 Identify the highest interest rate you could refinance at in order to pay the current balance off in 20 years and determine the interest rate, to the nearest quarter point, that would require a monthly total payment that is less than your current total payment. The interest rate that you qualify for will depend, in part, on your credit rating.Also, refinancing costs you $2,000 up front in closing costs. (a)Explain your strategy for solving the problem. (b)Present a step-by-step solution of the problem. (c)Clearly state your answer to Part 2. What is your decision? Your assignment must follow these formatting requirements: Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions. Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length. The specific course learning outcomes associated with this assignment are: Apply finance formulas and logarithms to amortize loans and calculate interest. Use technology and information resources to research issues in algebra. Write clearly and concisely about algebra using proper writing mechanics. Click here to view the grading rubric for this assignment.

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Finance 2 questions Attachments: jj-case.pdf

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Please look at the Case Memo Write-Ups and RocheHoldings_prep_sheet-1 I need (((2 pages single-spaced))) andfew exhibits or tables Please ensure that every table or exhibit that you add in is referred to in the text of your write-up Attachments: case-1.pdf RocheHoldings….docx Case-Writeups….doc

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i need one page answer Document Preview:

Homework Assignment Week Please answer the following questions below. Is it possible to achieve zero inventories? Why or why not? Can lean methodologies be applied to service-oriented businesses? Why or why not? Explain the relationship between quality and productivity in the lean enterprise â how does it compare to what we learned from the six-sigma environment? Homework Assignment Week Please answer the following questions below. Is it possible to achieve zero inventories? Why or why not? Can lean methodologies be applied to service-oriented businesses? Why or why not? Explain the relationship between quality and productivity in the lean enterprise â how does it compare to what we learned from the six-sigma environment? Attachments: Chap0138.ppt Homework-Assi….doc

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If you had to choose between investing your funds in U.S. Treasury bills at 9 percent or using covered interest arbitrage, what would be your choice? Defend your answer.

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How to get the holding period return for a $980 selling security that purchased fiver years before at $798?Prove that this return overstates the annualized, compound return. Based on the following information calculate the holding period return: P0= $11.00 P1= $11.40 D 1= $1.02

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Exercise 4 (2 points) The Fantastic Stuff Co. currently has debt with a market value of $400 million outstanding. The debt consists of 10% annual coupon bonds which have a maturity of 10 years and are currently priced at $1,211 per bond. The par value of each bond is $1,000. The firm also has an issue of 3 million preferred shares outstanding with a market price of $15.00. The preferred shares pay an annual dividend of $1.38. Fantastic also has 20 million shares of common stock outstanding with a price of $26.00 per share. The firm is expected to pay a $2. Document Preview:

Exercise 4 (2 points) The Fantastic Stuff Co. currently has debt with a market value of $400 million outstanding. The debt consists of 10% annual coupon bonds which have a maturity of 10 years and are currently priced at $1,211 per bond. The par value of each bond is $1,000. The firm also has an issue of 3 million preferred shares outstanding with a market price of $15.00. The preferred shares pay an annual dividend of $1.38. Fantastic also has 20 million shares of common stock outstanding with a price of $26.00 per share. The firm is expected to pay a $2.34 common dividend one year from today, and that dividend is expected to increase by 6% per year forever. Fantastic is subject to a 40% marginal tax rate. What is the firm’s after tax cost of debt? What is the firm’s cost of preferred stock? What is the firm’s cost of common stock? What is the firm’s weighted average cost of capital? (2 points) Polk Automotive sells about 3,000 engines a year. The cost of placing an order with its supplier is $1,000, and the inventory carrying costs are $208 for each engine. Polk likes to maintain safety stock of 20 engines at all times. What is the firm’s EOQ? How many orders will the firm need to place this year? What is the average inventory for the season? (2 points) You are trying to value a company. Following is the information for that company as well as the information for a comparable company: Company you are valuing Comparable company Value of debt = $7.5 million Stock price = $45.00 Est. EBITDA next year = $9 million Number of shares outstanding = 6.5 million Est income next year = $3 million Value of debt = $35 million Est. EBITDA next year = $32 million Est income next year = $10 million Estimate the enterprise value of the company you are evaluating using the P/E multiples Estimate the enterprise value of the company you are evaluating using the enterprise value/EBITDA multiples. Question #4 (1 point) When a firm follows a flexible current… Attachments: Farida-Assign….docx

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Solve finance questionJoe and Diane Peters have a home with an appraised value 180,000 and a mortgage balance of on $90,000. Given that an S&L is will to lend money at a loan-to-value ratio of 75% how big a home equity credit line can Joe and Diane obtain?s Document Preview:

Exercise 4 (2 points) The Fantastic Stuff Co. currently has debt with a market value of $400 million outstanding. The debt consists of 10% annual coupon bonds which have a maturity of 10 years and are currently priced at $1,211 per bond. The par value of each bond is $1,000. The firm also has an issue of 3 million preferred shares outstanding with a market price of $15.00. The preferred shares pay an annual dividend of $1.38. Fantastic also has 20 million shares of common stock outstanding with a price of $26.00 per share. The firm is expected to pay a $2.34 common dividend one year from today, and that dividend is expected to increase by 6% per year forever. Fantastic is subject to a 40% marginal tax rate. What is the firm’s after tax cost of debt? What is the firm’s cost of preferred stock? What is the firm’s cost of common stock? What is the firm’s weighted average cost of capital? (2 points) Polk Automotive sells about 3,000 engines a year. The cost of placing an order with its supplier is $1,000, and the inventory carrying costs are $208 for each engine. Polk likes to maintain safety stock of 20 engines at all times. What is the firm’s EOQ? How many orders will the firm need to place this year? What is the average inventory for the season? (2 points) You are trying to value a company. Following is the information for that company as well as the information for a comparable company: Company you are valuing Comparable company Value of debt = $7.5 million Stock price = $45.00 Est. EBITDA next year = $9 million Number of shares outstanding = 6.5 million Est income next year = $3 million Value of debt = $35 million Est. EBITDA next year = $32 million Est income next year = $10 million Estimate the enterprise value of the company you are evaluating using the P/E multiples Estimate the enterprise value of the company you are evaluating using the enterprise value/EBITDA multiples. Question #4 (1 point) When a firm follows a flexible current… Attachments: Farida-Assign….docx

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Which of these investments would you expect to have the highest rate of return for the next 20 years? A. U.S. Treasury bills B. Long-term corporate bonds C. Intermediate-term U.S. government bonds D. Money market funds

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Neon Lights Company is a private company with sales of $1,250,000 a year. Managementwants to go public but has to wait until the sales reach $2,000,000. If sales are expected to grow 10.5 percent annually, when is the earliest that Neon Lights can go public? (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to two decimal places, e.g. 5.45)

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jodie’s fashions has just signed a $2.2 million contract. the contract calls for a payment of $0.6 million today, $0.8 million one year from today, and $.8 million two years from today. What is this contract worth today if the firm can earn 7.2 percent on its money?

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the jelly jar has total assets of $79,600 and an equity multiplier of 1.35. What is the debt-equity ratio?

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You are looking to value an annuity that is held in your personal portfolio. The annuity’s first cash flow is a payment of $10,000 and it is set to grow at a rate of 7% over the next 6 years. If the current discount rate is 9%, then what is the value of this growing annuity?

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Magiclean Corporation is considering the acquisition of Dustvac Company. Dustvac has a capital structure consisting of $5 million (market value) of 11% bonds and $10 million (market value) of common stock. Dustvac’s pre-merger beta is 1.36. Magiclean’s beta is 1.02, and both it and Dustvac face a 40% tax rate. Magiclean’s capital structure is 40% debt and 60% equity. The free cash flows from Dustvac are estimated to be $3.0 million for each of the next 4 years and a horizon value of $10.0 million in Year 4. Tax savings are estimated to be $1 million for each of the next 4 years and a horizon value of $5 million in Year 4. New debt would be issued to finance the acquisition and retire the old debt, and this new debt would have an interest rate of 8%. Currently, the risk-free rate is 6.0% and the market risk premium is 4.0%. What Dustvac’s pre-merger WACC? What discount rate should you use to discount Dustvac’s free cash flows and interest tax savings? What is the value of Dustvac’s equity to Magiclean?

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Joshua borrowed $700 on January 1, 2012, and paid $35 in interest. The bank charged him a(n) $10 service charge. He paid it all back at once on December 31, 2012. What was the APR? (Round your answer to 1 decimal place.)

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You must make a payment of $1,990.71 in 10 years. To get the money for this payment, you will make 5 equal deposits, beginning today and for the following 4 quarters, in a bank that pays a nominal interest rate of 12% with quarterly compounding. How large must each of the 5 payments be? Round your answer to the nearest cent. $ ?

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Make a list of additional information or original source documents that you would request from the Bedos if they were real clients. What explanation would you provide as to why the documents are needed? ftp://ftp.sbmedia.com/Pickup/Case Approach 2nd edition/Chapter 1.pdf The case starts from appendix 1

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You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage loan for 80 percent of the $2,600,000 purchase price. The monthly payment on this loan will be $11,000. What is the effective annual rate on this loan? A) 4.98 percent B) 5.25 percent C) 5.46 percent D) 6.01 percent E) 6.50 percent

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You just acquired a mortgage in the amount of $249,500 at 6.75 percent interest, compounded monthly. Equal payments are to be made at the end of each month for thirty years. How much of the first loan payment is interest? (Assume each month is equal to 1/12 of a year.) A) $925.20 B) $1,206.16 C) $1,403.44 D) $1,511.21 E) $1,548.60

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karl can afford car payments of $235 a month for 48 months. The bank will lend him money to buy a car at 7.75 percent interest. How much money can he afford to borrow?

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You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 35-year mortgage loan for 85 percent of the $2,500,000 purchase price. The monthly payment on this loan will be $16,600. What is the APR on this loan? What is the EAR? Thank you guys! I cant figure this out for the life of me.

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Kristi is considering an investment that will pay $5,000 a year for 7 years, starting one year from today. How much should she pay for this investment if she wishes to earn a 12 percent rate of return?

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Today you take out a mortgage in the amount of $189,500 at an annual interest rate of 8.5 percent, compounded monthly. Equal payments are to be made at the end of each month for thirty years. What’s the remaining balance immediately after the first payment?

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Tori is planning to buy a car. The maximum payment she can make is $3400 per year, and she can get a car loan at her credit union for 7.3% interest. Assume her payments will be made at the end of each year 1-4. If Tori’s old car can be traded for $3324, which is her down payment, what is the most expensive car she can purchase?

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TR=$3Q TC=$1,500+2Q If the firm sells 1,300 units what are the firms earnings or losses? If sales rise to 2,000 units, what are the firms earnings or losses? if the total cost equation were TC = $2,000+$1.80Q what happens to the break even level of output units

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Winter 1, 2013 7/22/2012 Chapter 8. Ch 08 P08 Build a Model Except for charts and answers that must be written, only Excel formulas that use cell references or functions will be accepted for credit. Numeric answers in cells will not be accepted. You have been given the following information on a call option on the stock of Puckett Industries: P = $65 X = $70 t = 0.5 rRF = 4% s = 50.00% a. Using the Black-Scholes Option Pricing Model, what is the value of the call option? First, we will use formulas from the text to solve for d1 and d2. Hint: use the NORMSDIST function. (d1) = N(d1) = (d2) = N(d2) = Using the formula for option value and the values of N(d) from above, we can find the call option value. VC = b. Suppose there is a put option on Puckett’s stock with exactly the same inputs as the call option. What is the value of the put? Put option using Black-Scholes modified formula = Put option using put-call parity =

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You pay $21,600 to the Laramie Fund which has a NAV of $18.00 per share at the beginning of the year. The fund then deducted a front-end load of 4%. Over the next 4 years the fund return before expenses will be 4%/year. If the annual operating expenses will be 1% and the 12b-1 fees will be 0.5%, what is your investment worth at the end of 4 years?

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A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a corporate bond fund, adn the third is a T-bill money market fund that yields a sure rate of 5.5%. The probability distributions of the risky funds are: Stock fund (S) -Expected return (%) 15 Standard Deviation (%) 32 Bond fund (B) Expected return (%) 9 Standard Deviation (%) 23 The correlation between the fund returns is 0.15. 1,What is the portfolio weight for the corporate bond fund in the optimal risky portfolio? 2,What is the Sharpe ratio for the best feasible CAL? 3,Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasbile CAL. What is the standard deviation of your portfolio? And what is the proportion invested in the stock fund?

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A person deposits $3,000 annually in a retirement account that earns 8 percent. 1. HOW much will be in the account when the person retires at age 65 if the savings stat when the person is 40 ? 2. How much additional money will be in the accountant if the saver defers retirement until 70 and continues to make contributions? 3. How much additional money will be in the account if the saver stops contributions at 65 but does not retire till age 70? A 45 year old man puts funds into a retirement plan. He can save $2,000 a year and earn 9 percent on the savings. How much will accumulate if he retires at age 65? at retirement how much can he withdraw each year for 20 years from the accumulated savings if the savings continue at 9 percent? Some guys parents want to have $100,000 to send a newborn child to college, how much must be invested annually for 18 years if the funds earn 9 percent? please show all computations

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(TCO E) The MacMillen Company has equal amounts of low-risk, average-risk, and high-risk projects. The firm’s overall WACC is 12%. The CFO believes that this is the correct WACC for the company’s average-risk projects, but that a lower rate should be used for lower-risk projects and a higher rate for higher-risk projects. The CEO disagrees, on the grounds that even though projects have different risks, the WACC used to evaluate each project should be the same because the company obtains capital for all projects from the same sources. If the CEO’s position is accepted, what is likely to happen over time? (Points : 10)

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First you tell us the value of a project is its NPV. Now you say that the project’s value is its NPV plus the value of its options minus the cost of those options. Which is right?

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you’re trying to save to buy a new $190000 Ferrari. you have $40000 today that can be invested at your bank. the bank pays 4.8% on its accounts. how long will it be before you have enough to buy the car?

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Tucker Electronic System’s current balance sheet shows total common equity of $3,125,000. The company has 125,000 shares of stock outstanding, and they sell at a price of $52.50 per share. By how much do the firm’s market and book values per share differ? Please put the formula too

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Type of Financing Percentage of future financing Bonds (8%, $1,000 par value, 16 year maturity) 38% Preferred stock (5,000 shares outstanding, $50 par, $1.50 dividend) 15% Common Equity 47% Total 100% a. Market prices are $1,035 for bonds, $19 for preferred stock, and $35 for common stock. There will be sufficient internal common equity funding (ie., retained earnings) available such that the firm does not plan to issue new common stock. Calculate the firm’s weighted average cost of capital.

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What is the valuation process for determining the present value of a bond? What is the valuation process for determining the present value of a yield to maturity?

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six years from now, you will be inheriting $100,000. What is this inheritance worth to you today if you can earn 6.5 percent interest, compounded annually?

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What is the yield to maturity of a ten-year, $1000 bond with a 5.2% coupon rate and semiannual coupons if this bond is currently trading for a price of $884? Question 5 options: A) 5.02% B) 6.23% C) 6.82% D) 12.46%

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.) Anthony and Michelle Constantino just got married and received $30K in cash gifts for their wedding. How much will they receive on their 25th Anniversary if they place half in a fixed rate investment earning 7 % compounded annually. Would the future value be larger or smaller if the compounding period was 6 months? How much more or less would they have earned with this shorter compounding period?

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Suppose it is now January 1, 2008, and you just sold an investment that you own for 12,500. You purchased the investment four years ago for 10,500 during the time you held the investment it paid income equal to $1000 each year. What is the four year holding period yield that you earned on your investment.

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using the graph below, answer the following questions: what is the marginal revenue of producing the third units. Units produced : 0,1,2,3,4,5 Total revenue: 0,100,180,250,290,310 Total costs:0,50,110,180,270,380

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You want to retire as a millionaire. How much do you need to put away each month if you put your money in a CD at 3.5% interest rate (using the current age of 40 years old)

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Suppose an investor deposits $2500 in an interest-bearing account at her local bank. The account pays 2.5% interest compounded daily. If the investor plans on withdrawing the original principal plus accumulated interested at the end of 7 years, what is the total amount that she should expect to receive assuming interest rates do not change?

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william puts $8000 in the bank today. the quoted interest rate is 8%, and the bank compounds interest quarterly. How much will he have at the end of 9 years?

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You want to retire as a millionaire. How much do you need to put away each month if you use government bonds and have an average return of 4% (using the current age of 40 years old)

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Suppose you deposit $2,500 into a bank account at the beginning of every year, with the first deposit made today (on 2/10/2013). The bank account has a nominal annual interest rate of 8 percent and interest is compounded annually. How much will you have in the account (FV6) at the end of 6 years (or by 2/10/2019)?

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Suppose a dividend that pays at $1.07 has a growth rate of 20% for the first 3 years. After the 3 years, there is a long-run growth rate of 8%. The stock has a required rate of return of 12.4%. Find the current market price of a share of common stock.

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Suppose the following rates are averages for banks in your area: interest checking accounts pay 1%, savings accounts pay 2%, and one-year certificates of deposit pay 3%. All accounts are federally insured by the FDIC. The difference in rates can be explained mainly by

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Suppose the Dow Index is made up of 3 stocks A, B and C. A, B, C are trading at $1000, $500 and $250 respectively and the Dow index is at 6000. Later today, A is scheduled for a stock split in the ratio 2:1 and B is being split 5:1. 1. After the stock split is there any change in the way the Dow index is calculated, i.e. what is the new divisor? 2. If by tomorrow noon, A, B and C are trading at $505, $95 and $270 respectively, what would be the level of Dow index?

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1)It is now January 1. You plan to make a total of 5 deposits of $400 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 8% but uses semiannual compounding. You plan to leave the money in the bank for 10 years. How much will be in your account after 10 years? 2)You must make a payment of $1,244.72 in 10 years. To get the money for this payment, you will make 5 equal deposits, beginning today and for the following 4 quarters, in a bank that pays a nominal interest rate of 10% with quarterly compounding. How large must each of the 5 payments be? 3)Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 payments of $50 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $875 each. Your money is now invested in a bank that pays an 8% nominal (quoted) interest rate but with quarterly compounding. You regard the securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they are a good investment. What is their present value to you? Round answer to nearest cent. 4)An investment will pay $200 at the end of each of the next 3 years, $400 at the end of Year 4, $500 at the end of Year 5, and $700 at the end of Year 6. If other investments of equal risk earn 10% annually, what is its present value? what isits future value?

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1)Mahjong, Inc., has identified the following two mutually exclusive projects:

Year

Cash Flow (A)

Cash Flow (B)

0

‘$37,300

‘$37,300

1

19,660

7,180

2

15,170

13,680

3

12,660

20,160

4

9,660

24,160

Required:

(a)

What is the IRR for Project A?

(b)

What is the IRR for Project B?

(c)

If the required return is 11 percent, what is the NPV for Project A?

(d)

If the required return is 11 percent, what is the NPV for Project B?

(e)

At what discount rate would the company be indifferent between these two projects?

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1. What is the Rule of 72 ? 2. Solve using the Rule of 72: rate = 8%, years = 18, pv = $7,000. Solve for fv. 3.Solve, using the Rule of 72rate = 4%, years = 18, fv=$8,000. Solve for pv. 4. Solve, using the Rule of 72: rate =6%, pv=$7,000, fv= $56,000. Solve for years. 5. Solve, using the Rule of 72: pv=$10,000; fv=$160,000; years=10. Solve for rate. Q6-Q9. Use appropriate tvm table in your textbook’s appendix to solve Q6-Q9.For each question, cite the appropriate table that you are using, show the formula, and then plug-in your numbers to solve. Show all your work. Q6 pv= $7,200 rate = 7% periods = 15 Solve for fv Q7 fv=$15,000 rate = 15% periods = 10 Solve for pv Q8 payment = $6,000 interest rate =8% number of periods = 10 Solve for pva Q9 payment = $4,000 interest rate =10% number of periods = 20 Find fva For Q10-Q13, you many use tvm tables, a financial calculator, or excel to solve. Be sure to show all the steps in your work: factors & formula if you use the tables; keystrokes if you use a financial calculator; or formulas if you use excel. Q10. Stressed and penniless after months of day trading, Mr. Baruch decides to invest his savings into a conservative growth mutual fund. He plans to retire in30 years and wants to make annual deposits into his IRA in order to accumulate a sum of $450,000 at the end of the 30 years. Mr. Baruch expects to earn 10% per year, on average, in his mutual fund. What should be the amount of Baruch’s annual contributions ? Q11. On the way to Stop&Shop, you buy a lottery ticket and win $100,000. The catch is that the money will be paid to to you in two installments: $50,000 today, and $50,000 at the end of 5 years from now. Q11-a: Assuming an interest rate of 8%, what is the present value of your total lottery payments ? Q11-b: Suppose that you invest the $50,000 winnings that you receive today and earn 8% annually for the next 5 years. What is the future value of your total lottery payments ? 12. InvestorG. Loebowns a 5-year, $1000 bond with a 5% coupon. If the yield to maturity on similar bonds is currently 10%, what is Mr. Loeb’s bond worth today ? 13. A security analyst is forecasting dividends for Boston Electric over the next four years, as follows: $1 (Y1), $1.50 (Y2); $2.00 (Y3); $2.75 (Y4). In addition, the analyst expects that the stock could be sold for $62.25 four years from now. If the required return on the stock is 8%, what is the stock worth today ?

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Summarize the Bedos’ current financial situation, paying special attention to spending, emergency fund balances, earnings on monetary assets, and cash flow efficiency of debt. ftp://ftp.sbmedia.com/Pickup/Case Approach 2nd edition/Chapter 1.pdf the case starts from appendix 1

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Successful businesses typically progress through a series of life-cycle stages:from the idea stage to exiting the business; these five stages include the:

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1. Build a Balanced Scorecard for the unit of the organization for which you work, or have worked. Unless you are in senior management, focus on the unit with which you are most familiar rather than the organization as a whole. Identify the strategic objectives of the entire organization and the secondary objectives for the unit. Develop three specific objectives within each of the four perspectives for the unit. Each objective should have at least one quantified target metric associated with it. It is essential to understand what metrics are. Be sure to study the next section of this Conference entitled “More Information on metrics” The specific information needed to calculate each metric should be discussed. For each metric discuss the appropriate target value and the actions that need to be taken to achieve the target. The paper should be no more than 15 pages, including the reference list, and be formatted in accordance with the APA guidelines as modified for the MBA program (http://info.umuc.edu/mba/public/MBA-apa.html). Please format your paper in Microsoft Word as a XXX.doc or XXX.rtf file, and place the paper in your assignment folder. 2. By Friday night, create a separate main topic in the Week 10 conference, using your name in the title and post an Executive Summary in the text box. Do not include any confidential information in your Executive Summary, because your Executive Summary is not private. But you can include confidential information in your paper because your assignment folder is private. Comment on your classmates’ Executive Summaries in the Week 10 conference. Metrics Develop three specific objectives within each of the four perspectives for the unit. Each objective should have at least one quantified target metric associated with it. So your table should contain 4 perspectives, each with 3 specific objectives, and a target value of the metric for each objective. If you would like to see a sample table of metrics, here is one example: Perspective Objective Metric Target Value Financial Revenue Growth Operating Profit Growth Short-term Solvency Long-term Solvency Annual Rate of Growth % EBIT/Sales Current Ratio Long-term Debt/Equity > 6% > 7% > 2.0 < 30% Customer Increase Number of Customers Maintaining Transaction Size Improve Customer Satisfaction Annual rate of Customers Increase Average Transaction Size Median Score: Customer Survey > 5% > $600 > 90% Internal Product Improvement Ratio of New to Old Products Maintain Market Share % R&D Expense to Revenue Ratio of New to Old Products Market Share % > 4% > 8% > 24% Learning Employee Training Employee Turnover Employee Compensation Annual Hours of Employee Training Employee Turnover Average Compensation > 30,000 < 3% > $38,000 Sample Table of Metrics for an Example Business Unit

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1.)Bruer, Inc., is expected to maintain a constant 6.20 percent growth rate in its dividends, indefinitely. If the company has a dividend yield of 4.70 percent, what is the required return on the company’s stock? 2.)Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next eleven years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a $13.75 per share dividend in year 12 and will increase the dividend by 5.50 percent per year thereafter. If the required return on this stock is 13.50 percent, what is the current share price? 3.)Taylor Corp. is growing quickly. Dividends are expected to grow at a 28 percent rate for the next three years, with the growth rate falling off to a constant 7.9 percent thereafter. If the required return is 16 percent and the company just paid a $3.70 dividend, what is the current share price? (Hint: Calculate the first four dividends.)

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1. Define the effects of competition on residual income and the residual income valuation approach. Type your question here

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1. Free Cash Flow (Explain and describe) 2. Define the dividends to the investor versus cash flow 3. What is different between Nominal and Real Cash flow Instruction: Please explain and describe the question above with an example. Type your question here

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AIM Company purchased a stamping machine in January2010 for a cash price of $890,000. The list price of the machine was $950,000.In June 2012 AIM can sell the stamping machine for $900,000. As of June 30,2012, accumulated depreciation for the stamping machine was $120,000. AIM Company’s Balance Sheet dated June 30, 2012 will show the stamping machine at a net amount of:

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Better Plastics is a mature manufacturing firm. The company just paid a $4 annual dividend, but management expects to reduce the payout by 3 percent per year, indefinitely. If you require a 12 percent return on this stock, what will you pay for a share today?

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Bond P is a premium bond with an 8% coupon. Bond D is a 4% coupon bond currently selling at a discount. Both make annual payments, have YTM of 6%, and have five years to maturity. What will be the current yield and the capital gains yield for each bond for each of the next 5 years?

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Burchetts Green had enjoyed the bank training course, but it was good to be starting his first real job in the corporate lending group. Earlier that morning the boss had handed him a set of financial statements for The Hobby Horse Company, Inc. (HH). “Hobby Horse,: she said, “has a $45 million loan from us due at the end of September, and it is likely to ask us to roll it over. The company seems to have run into some rough weather recently, and I have asked Furze Platt to go down there this afternoon and see what is happening. It might do you good to go along with her. Before you go, take a look at these financial statements and see what you think the problems are. Here’s a chance for you to use some of that stuff they taught you in the training course.: Mr. Green was familiar with the HH story. Founded in 1990, it had rapidly built up a chain of discount stores selling materials for crafts and hobbies. However, last year a number of new store openings coinciding with a poor Christmas season had pushed the company into loss. Management had halted all new construction and put 15 of its existing stores up for sale. Mr. Green decided to start with the 6-year summary of HH’s balance sheet and income statement (Table 4’11). Then he turned to examine in more detail the latest position (Tables 4’12 and 4’13). What appear to be the problem areas in HH? Do the financial ratios suggest questions that Ms. Platt and Mr. Green need to address? 108 Part One Introduction www.mhhe.com/bmm6e 2008 2007 2006 2005 2004 2003 Net sales 3,351 3,314 2,845 2,796 2,493 2,160 EBIT 9 312 256 243 212 156 Interest 37 63 65 58 48 46 Taxes 3 60 46 43 39 34 Net profit 49 189 145 142 125 76 Earnings per share 0.15 0.55 0.44 0.42 0.37 0.25 Current assets 669 469 491 435 392 423 Net fixed assets 923 780 753 680 610 536 Total assets 1,592 1,249 1,244 1,115 1,002 959 Current liabilities 680 365 348 302 276 320 Long-term debt 236 159 297 311 319 315 Stockholders’ equity 676 725 599 502 407 324 Number of stores 240 221 211 184 170 157 Employees 13,057 11,835 9,810 9,790 9,075 7,825 TABLE 4’11 Financial highlights for The Hobby Horse Company, Inc., year ending March 31 TABLE 4’12 INCOME STATEMENT FOR THE HOBBY HORSE COMPANY, INC., FOR YEAR ENDING MARCH 31, 2008 (all items in millions of dollars) Net sales 3,351 Cost of goods sold 1,990 Selling, general, and administrative expenses 1,211 Depreciation expense 159 Earnings before interest and taxes (EBIT) 9 Net interest expense 37 Taxable income 46 Income taxes 3 Net income 49 Allocation of net income Addition to retained earnings 49 Dividends 0 Note: Column sums subject to rounding error

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The Border Crossing just paid an annual dividend of $4.20 per share and is expected to pay annual dividends of $4.40 in year 1 and $4.50 in year two. After that, the firm expects to maintain a constant dividend grow rate of 2 percent per year 1 and $4.50 in year two. After that, the firm expects to maintain a constant dividend growth rate of 2 percent per year. What is the value of this stock today if the required return sis 14 percent? A.$30.04 B.$32.18 C.$33.33 D.$35.80 E.36.74 Please show the work

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Brad’s parents are about to invest their nest egg in a stock that he has estimated to have an expected return of 9 percent over the next year. If the return on the stock is normally distributed with a 3 percent standard deviation, in what range will the stock return fall 95 percent of the time? 2.85% – 11.85%

3.00% – 12.00%

3.12% – 14.88%

3.95% – 12.95%

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The capital budgeting decision model MOST CLOSELY RELATED to Net Present Value (NPV) is: 1. a.

Internal Rate of Return (IRR)

b.

Payback (PB)

c.

Profitability Index (PI)

d.

Average Accounting Return (AAR) Which of the following statements is TRUE?

1. a.

The NPV of a project INCREASES when the required rate of return increases

b.

The NPV of a project DECREASES when the required rate of return decreases

c.

The NPV of a project DECREASES when the required rate of return increases

d.

The NPV of a project INCREASES as the riskiness of the project increases

1. The Discount Rate used to determine a capital budgeting project’s NPV: a.

Is the project’s Internal Rate of Return (IRR)

b.

Is usually the firm’s Cost of Capital

c.

Changes from period to period

d.

Is independent of the riskiness of the project

1. What is the NET PRESENT VALUE of a project with the following estimated Cash Flows (CFs), if the associated risk requires a 12% rate of return? Year Cash Flow 0 -$ 1,000,000 1 450,000 2 500,000 3 400,000 4 900,000 a.

-$578,556

b.

$578,556

c.

$657,061

d.

$575,680

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Carson Electronics uses 70 percent common stock and 30 percent debt to finance its operations. The aftertax cost of debt is 5.4 percent and the cost of equity is 15.4 percent. Management is considering a project that will produce a cash inflow of $36,000 in the first year. The cash inflows will then grow at 3 percent per year forever. What is the maximum amount the firm can initially invest in this project to avoid a negative net present value for the project? Central Systems, Inc. desires a weighted average cost of capital of 8 percent. The firm has an aftertax cost of debt of 5.4 percent and a cost of equity of 15.2 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?

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When ONLY ONE capital budgeting method is used to evaluate projects, most analysts suggest that it should be 1. a.

Profitability Index (PI)

b.

Modified Internal Rate of Return (MIRR)

c.

Net Present Value (NPV)

d.

Discounted Payback (DPB) Which of the following statements is TRUE?

1. a.

Undertaking a project with a POSITIVE NPV always adds value to a firm.

b.

The IRR is the discount rate used to determine a project’s Net Present Value (NPV)

c.

The Payback (PB) method is usually the final determinant in the capital budgeting decision making process

d.

The IRR and MIRR models ALWAYS yield the same accept/reject project decision 1. Which of the following is NOT TRUE about the PAYBACK decision methodology? Answer a.

It IGNORES the Time Value of Money

b.

It IGNORES Cash Flow AFTER the calculated payback period

c.

It is biased in favor of projects with BACK LOADED cash flows

d.

It is simple and easy to understand Project B requires an Initial (Year 0) Investment of $5,000,000; and will return $1,155,000 for each year of its five year useful life. If the projects required rate of return is 14%, what is the Net Present Value (NPV) of the Project B? a.-$1,034,791.00 c.-$1,232,100.41 d.-$884,500.56 b.

$ 1,842,777.21

.

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Bank a offers loans with a 10 percent stated annual rate and a 10 percent compensating balance. you wish to obtain 250,000 in a six month loan? How much must you borrow to obtain 250,000 in usable funds if you currently have 30,000 on deposit at the bank?

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Based solely on time value of money techniques (rationale), do you think it is logical for people to over pay their taxes throughout the year and get a refund? Keep in mind the U.S. government does NOT credit you with interest for monies withdrawn from your paychecks throughout the year. Type your question here

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The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 18 percent a year for the next 4 years and then decreasing the growth rate to 3 percent per year. The company just paid its annual dividend in the amount of $2.50 per share. What is the current value of one share of this stock if the required rate of return is 8.00 percent? $73.39 $88.43 $99.85 $102.35 $85.93

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Assume you are at the beginning of 2001. The real risk-free rate of interest is 3 percent and expected to remain constant. Inflation is expected to be 2 percent, 3 percent, 4 percent, and 5 percent in years 2001, 2002, 2003, and 2004, respectively. The default premium is 1 percent. The maturity risk premium on four year bonds is 0.50%. What is the nominal interest rate on a four-year U.S. government bond?

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Assume a manufacturing company issued 30-year, 6 percent semiannual bonds 8 years ago. The bonds currently sell at 96 percent of their face value (or 0.96 of their $1,000 par value), and the company’s tax rate is 35 percent. Assume as well a face value of $1,000 per bond. a. What is the company’s pre-tax cost of debt. b. What is the company’s after-tax cost of debt? c. Which is more relevant, the pre-tax or after-tax cost of debt? Briefly explain why.

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Assume a retail shopping center can be purchased for $6 million. The center’s first year NOI is expected to be $519,000. A $4,300,000 loan has been requested. The loan carries an 8 percent fixed contract rate, amortized monthly over 25 years with a 10-year term. What will be the property’s (annual) debt coverage ratio in the first year of operations? Please show all steps of the calculation.

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Assume that a business’s balance sheet reports total assets of $500,000 and total liabilities of $300,000. Now assume that $20,000 of net fixed assets (net plant and equipment) are written off due to technological obsolescence. All else the same, what is the total equity of the business after the write-off? Choose one answer. a. $200,000 b. $190,000 c. $180,000 d. $170,000 e. There is insufficient information given to answer this question.

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Atlas Mines has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 2.75 percent annually. The firm just paid an annual dividend of $1.67. What will the dividend be six years from now? You are purchasing a 20-year, zero-coupon bond. The yield to maturity is 8.68 percent and the face value is $1,000. What is the current market price? You are considering a project which will provide annual cash inflows of $4,500, $5,700, and $8,000 at the end of each year for the next three years, respectively. What is the present value of these cash flows, given a 9 percent discount rate?

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How will the fluctuation of mortgage rates and the expected increase of housing prices affect a decision to buy a house

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The following data are the expected after-tax cash flows for two capital projects, and the firm’s cost of capital (WACC) is 13 percent (WACC = 0.13). In your work assume that the projects have zero salvage value at the end of Year 4. CF 0

CF 1

CF 2

CF 3

CF 4

Project A

-$500

$200

$200

$300

$100

Project B

-$500

-$400

$500

$1,000

$100

(a) What is the regular payback period (PP), in years, for each project? (b) Using the firm’s 13 percent cost of capital, what is the net present value (NPV) for each project? Since these projects are mutually exclusive, which (if any) of these projects should the firm accept? (c) What is the terminal value (TV) for each project and what is the modified internal rate of return for Project B only?

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WHICH OF THE FOLLOWING IS MOST CORRECT: 1. Cap rates vary inversely with the perceived risk of the investment 2.Cap rates vary positively with the perceived risk of the investment. 3.Cap rates tend to decrease when the yields on Long Term Treasury securities increase. 4.Cap rates tend to increase when the expected growth rate in net rental income increases.

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Concamera Optiplex is going through a period where their expansion plans result in a skewed growth for the next three years. They plan to pay a dividend of $0.50 per share in the next year and the year after that (d1 and d2). Following that they expect to pay $0.525 in dividend in year 3 (a growth rate of 5% over year 2). After year 3 (from year 4) they expect a constant growth rate of 10%. What would be the value of the company’s stock today if the required rate of return for the equity investor is 15%? $8.75 $11.55 $75.00 $16.35 Please show work if possible.

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You have arranged for a loan on your new home. Your monthly payments are going to be $675 for 30 years and your rate was quoted at 6%. What was the value of your loan?

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If the APR on auto loans is 9% and you finance the purchase over 36 months, what is the maximum price you can pay for the car?

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Fancy Distributing Company of Atlanta sells fans and heaters to retail outlets throughout the Southeast. Joe Fancy, the president of the company, is thinking about changing the firm’s credit policy to attract customers away from competitors. The present policy calls for 1/10, net 30 cash discount. The new policy would call for a 5/10, net 45 cash discount. Currently, 35 percent of Fancy customers are taking the discount, and it is anticipated that this number would go up to 65 percent with the new discount policy. It is further anticipated that annual sales would increase from a level of $200,000 to $600,000 as a result of the change in the cash discount policy. The increased sales would also affect the inventory level. The average inventory carried by Logan is based on a determination of an EOQ. Assume sales of fans and heaters increase from 11,500 to 23,750 units. The ordering cost for each order is $175, and the carrying cost per unit is $2.50 (these values will not change with the discount). The average inventory is based on EOQ/2. Each inventory has an average cost of $12.50. Cost of goods sold is equal to 60 percent of net sales; general and administrative expenses are 15 percent of net sales; and interest payments of 14 percent will only be necessary for the increase in the accounts receivable and inventory balances. Taxes will be 34 percent of before-tax income. a. Compute the accounts receivable balance before and after the change in the cash discount policy. Use the net sales (total sales minus cash discounts) to determine the average daily sales. b. Determine the EOQ before and after the change in the cash discount policy. Translate this into average inventory (in units and dollars) before and after the change in the cash discount policy. c. Compute the following income statement: Net Sales= Cost of Goods Sold= Gross Profit= General and Administrative expense= Operating Profit= Interest on increase in accounts receivable and inventory (14%)= Income before taxes= Taxes= Income after taxes= (Each showing the values both before and after the policy change) d. Should the new cash discount policy be utilized? Briefly comment.

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Fantasty Corp has a beta of 1.6 and is currently in equilibrium. The required rate of return on the stock is 14.00% versus a required return on an average stock of 10.00%. Now the required return on an average stock increases by 30.0% (not percentage points). Neither betas nor the risk-free rate change. What would Fantasty ‘s new required return be?

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Your firm is considering building a new office complex. Your firm already owns land suitable for the new complex. The current book value of the land is $100,000; however, a commercial real estate agent has informed you that an outside buyer is interested in purchasing this land and would be willing to pay $650,000 for it. When calculating the net present value (NPV) of your new office complex, ignoring taxes, the appropriate incremental cash flow for the use of this land is: A) $650,000 inflow B) $0 C) $100,000 outflow D) $650,000 outflow

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1. A firm is considering a project with an upfront cost (Yr0) of $337,000; a required rate of return of 12%; and the following expected CFs over the four year life of the project: Yr1 $ 95,000 Yr2 $ 173,000 Yr3 $ 201,000 Yr4 $ 22,000 What is the project’s Net Present Value (NPV)? Answer X

10,465.45

91,361.13

42,785.20

1. A firm is considering a project with an upfront cost (Yr0) of $337,000; a required rate of return of 12%; and the following expected CFs over the four year life of the project: Yr1 $ 95,000 Yr2 $ 173,000 Yr3 $ 201,000 Yr4 $ 22,000 What is the project’s Payback (PB) Period? Answer 2.11 periods

2.34 periods

2.62 periods

2.80 periods

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Which of the following financial intermediaries concentrates on collecting the contributions of employees and employers and invest them in a variety of financial assets? Commercial banks finance companies thrift institutions none of the above

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Which of the following statements is CORRECT?

A.

Under current laws and regulations, corporations must use straight-line depreciation for all assets whose lives are 5 years or longer.

B.

UsingMACRS depreciationrather than straight line normally has the effect of speeding up cash flows and thus increasing a project’s forecasted NPV.

C.

Corporations must use MACRS depreciation for both stockholder reporting and tax purposes.

D.

Since depreciation is a cash expense, the faster an asset is depreciated, the lower the projected NPV from investing in the asset.

E.

Using MACRS depreciation rather than straight line normally has the effect of slowing down cash flows and thus reducing a project’s forecasted NPV.

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Which of the following is not a right of common stockholders? (Points : 3) Dividend Rights Asset Rights Preemptive Rights Cumulative dividend rights Voting Rights

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If D = $1.25, g (which is constant) = 4.7%, and P = $29.00, what is the stock’s expected dividend yield for the coming year?

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If D = $1.50, g (which is constant) = 6.9%, and P = $56, what is the stock’s expected capital gains yield for the coming year? 5.66 8.49 7.80 6.90 5.59

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Which of the following statements is FALSE? A) Many projects use a resource that the company already owns. B) When evaluating a capital budgeting decision, we generally include interest expense. C) Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise because of the decision to take on the project. D) As a practical matter, to derive the forecasted cash flows of a project, financial managers often begin by forecasting earnings.

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d. How would you estimate the cost of equity (fund capital) for a not-for-profit business?

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the default risk of corporate bonds decreases, what will happen to the demand for corporate bonds, the price of corporate bonds, the demand for treasuries, and the price for treasuries? Also, explain what direction the demand curve moves for corporate bonds and treasuries (either to the left or to the right).

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Which one of the following is the rate of return an investor earns on a bond before adjusting for inflation: Nominal Rate Dirty rate YTMxm Clean rate

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Denver Interiors, Inc., has sales of $836,000 and cost of goods sold of $601,000. The firm had a beginning inventory of $36,000 and an ending inventory of $47,000. What is the length of the inventory period? An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

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Deposits placed in foreign banks that remain denominated in U.S. dollars are called bankers’ acceptances Eurodollars federal funds commercial paper

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the coupon rate on XYZ is 6%, annual yield to maturity is 10%, and 20 years to maturity and annual coupons. a. Assume 1 year passes and yield curve remains constant. Calculate the new price of the bond b. Verify YTM=% price change + Coupon Yield

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Current periods Eps: 4.77 Current periods Dps: 1.21 Required return: 7.3% If the company expects its dividends to remain constant for 15 periods and then stop forever, what should this company’s price be? Answer is 10.81. I need the formula and how to set it up to get that answer.

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Current share price: $62.11 Growth rate: 2% Expected or required return: 7.4% Given the information above, if this company expects its dividends to grow forever at the above growth rate, what should its next expected dividend (D 1) be? (Round to the nearest cent.) Answer is 3.35. I need to know the formula and specific allocation of numbers.

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Current (just paid) dividend per share: $8.96 Beta: 1.4 Risk-free rate: 2% Expected market return: 16.5% Given the information above, if this company expects its dividends to remain constant for 6 periods and then stop forever, what should this company’s current price be? Answer is 28.17. I need to know how to get this answer and what formula is used.

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Explain how the Du Pont system of analysis breaks down return on assets. Also explain how it breaks down return on stockholders’ equity.

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Explain the interconnectivity of the world’s largest stock markets. Discuss which country you believe has the most influence on the U.S. stock market performance and why. Explain your rationale.

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Expected dividend in period 1: $0.78 Expected dividend in period 2: $1.2 Expected dividend in period 3: $1.84 Perpetual growth rate after 3 periods: 4.9% Expected or required return: 9.9% Given the information above, what should this company’s current price be? Answer is 32.17. I need the formula and placement of numbers.

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The EBIT breakeven point can be calculated using which of the following formulas? A) (Units Sold Af— Sale Price) – (Units Sold Af— Cost per unit) – SG&A – Depreciation = 0 B) (Units Sold Af— Sale Price) + (Units Sold Af— Cost per unit) – SG&A – Depreciation = 0 C) (Units Sold Af— Sale Price) – (Units Sold Af— Cost per unit) + SG&A + Depreciation = 0 D) (Units Sold Af— Sale Price) + (Units Sold Af— Cost per unit) + SG&A – Depreciation = 0

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Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the profits or losses. Which type of business did they create if they both have full personal liability for the firm’s debts?

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Dexter Industries stock has a price of $25.50 today. The stock’s year-end (or next) dividend is expected to be $3.15 per share, and Dexter’s earnings per share and dividends per share have grown at a constant rate over a long period of time. The required rate of return for a firm of Dexter’s market risk is 16% (so that r(s) = 0.16). Based on these facts, what is the expected growth rate in dividends, g, for Dexter Industries? Also, what will be the expected price of Dexter’s stock 10 years from today (3/24/2023)?

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The equation for straight-line depreciation is______. A=(Initial Investment – Salvage)/ Life of Asset B-Basis/Life of Asset C-(Basis – Salvage) / Life of Asset D-Initial Investment / Life of asset

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Discuss how the regional Federal Reserve banks affect overall monetary policy. What should they do or not doType your question here

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If the discount rate is stated in nominal terms, then in order to calculate the NPV in a consistent manner requires that project: I) cash flows be estimated in nominal terms II) cash flows be estimated in real terms III) accounting income be used

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The next dividend payment by Blue Cheese, Inc., will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent forever. The stock currently sells for $31 per share. What is the dividend yield? (Round your answer to 2 decimal places. What is the expected capital gains yield?

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a) given the rate info below estimate the nominal rate for aa rate corp bond, assume liquidity premuim of 6 basis points , identiify inflation risk premuim , default risk premuim, the maturity risk premium, and liquidity premuim 3 month t-bills: 4.0% 30 years treasurybonds 6.0% aa rated corp bonds 8.0 % inflation rate 2.5 b} if provided the nominal rate of intrest of 7.4 and anticipated rate of inflation of 4.5 what is real rate of intrest c} end of year a b c 1 300 400 2 300 3 300 4 300 300 600 5 300 6 300 7 300 8 300 600 calculate present value of each investment, assuming a 15% discount rate what is franks best alternative

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Henley Corporation is a privately held company specializing in lawn care products and services. The most recent financial statements are shown below: 2010: Income Statement for year ending December 31 (millions of Dollars Except for per share data) Net Sales= $800.0 Cost (except Depreciation= 576.0 Depreciation

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Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 ‘$ 342,000 ‘$ 50,500 1 53,000 24,800 2 73,000 22,800 3 73,000 20,300 4 448,000 15,400 Whichever project you choose, if any, you require a 14 percent return on your investment. a-1 What is the payback period for each project Project A:______years Project B:______years

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Holding Period Return Based on the following information calculate the holding period return: P0= $11.00 P1= $11.40 D 1= $1.02

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You have been informed that a company has a WACC of 12.40 percent. The company’s cost of equity is 15 percent, and its cost of debt is 8 percent. The tax rate is 35 percent. What is this company’s target debt-equity (D/E) ratio? HINT: This company has no preferred stock, so set up the firm’s WACC equation by letting X = w d and (1 ‘ X) being the other capital component

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The Houston Corp. needs to raise money for an addition to its plant. It will issue 300,000 shares of new common stock. The new shares will be priced at $60 per share with an 8.5% spread on the offer price. Registration costs will be $150,000. Presently Houston Corp has earnings of $3 million and 750,000 shares outstanding. Using this information, answer the following questions. A. Compute the potential dilution from this new stock issue. Round your answer to the nearest penny and omit the dollar sign. B. Compute the net proceeds to Houston Corp. Round the answer to the nearest whole dollar and omit the dollar sign and commas (ex: $12,500,000.23 would be entered as “12500000” without the quotation marks).

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What is the internal rate of return on an investment with the following cash flows?

Year

Cash Flow

0

‘$121,000

1

41,400

2

40,900

3

48,450

10.28 percent 30.85 percent 3.87 percent 12.01 percent 36.02 percent

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The Green Giant Has a 5 perecnt profit margin and a 40 percent dividend payout ration the total assest turnover is 1.40 and the equilty militiplier is 1.50. What is the sustainable rate of growth?

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An income-producing property is priced at $500,000 and is expected to generate the following after-tax cash flows: Year 1: $46,000; Year 2: $47,000; Year 3: $47,000; Year 4: $55,000; and Year 5: $675,000. Would an investor with a required after-tax rate of return of 15 percent be wise to invest at the current price? Please show all steps of the calculation.

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hello, I am trying to understand how the Q is solved. the only thing that I dont understand is how I find out the Marginal benefit. I will post a picture of the solution and here is the Q: Sommer Inc. is trying to determine how much to spend on safety equipment for its planet. the first colum in teh table gives values for possible expenditures the second colum gives the expected # of worker injures. the third colum gives the expected severity per injury( cost to sommer per injury) associated with each expenditure level. How much should Sommer spend on safety if it’s trying to maximaize firm value? ignore the time value of money.

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You are going to receive $200,000 in 50 years. What is the difference in present value betweeen using a discount rate of 15 percent vesus using 5 percent?

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Gravely’s stock price is currently $34.25 and the current quarterly dividend is $0.25. Consensus estimates for Gravely indicate a growth rate in earnings of 10% into the foreseeable future. If Gravely plans to sell 1 million shares to raise new capital for expansion, what is the cost of new equity if the issuance (flotation) costs are 8%?

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A contract that obligates the owner to purchase an underlying asset at a specified price on a specified day is a (n) ____________ contract

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If a corporate bond is issued with a coupon rate that varies directly with the required return, the price of the bond will A) equal the face value. B) be greater or less than the face value depending upon how interest rates vary. C) be greater than the face value. D) be less than the face value

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given information: Current period’s EPS: $2.51 Current period’s DPS: $2.51 Periodic expected or required return: 9.6% Given the information above, if this company expects its dividends to remain constant for 9 periods and then stop forever, what should this company’s current price be?

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“Fraud in Investment Hedge Fund Management” Please respond to the following: Create a scenario where a company would benefit from using hedge funds. Discuss the most significant pitfall of using hedge funds and how companies can avoid it.

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What is the future value of a 10 year annuity of $2000 per period where payments come at the beginning of each period? The interest rate is 8 percent?

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The future value of a $500 investment today at 10 percent annual interest compounded semiannually for 5 years is: $805. $814. $750. $923.

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What is the risk structure of interest rates? And, what are the three major components that are included

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The robinson company had a cost of goods sold of 1,000,000 in 2011 and 1,200,000 in 2012. b. what would have been the inventories in 2012 if the 2011 turnover ratio had been maintained?

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A stock has a beta of 1.55, the expected return on the market is 12 percent, and the risk-free rate is 4.8 percent. What must the expected return on this stock be? rev: 09_20_2012 15.16% 16.6% 15.96% 23.4% 16.76%

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Stock A has an expected rate of return of 8 percent, a standard deviation of 20 percent, and a market beta of 0.5. Stock B has an expected rate of return of 12 percent, a standard deviation of 15 percent, and market beta of 1.5. Which investment is riskier? Why? (Hint: Remember that the risk of an investment depends on its content.)

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a stock has an expected return of 13.50 percent and a beta of 1.16 and the expected return on the market is 12.50 percent. what must the risk-free rate be

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What is the risk neutral probability for state 1?

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Stock A’s stock has a beta of 1.30, and its required return is 13.25%. Stoch B’s beta is ).80. If the risk-free rate is 4.75%, what is the required rate of return on B’s stock?

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You own a stock portfolio invested 15 percent in Stock Q, 20 percent in Stock R, 10 percent in Stock S, and 55 percent in Stock T. The betas for these four stocks are 0.57, 0.67, 1.07, and 1.67, respectively. What is the portfolio beta? 1.22 1.24 1.27 1.18 1.31

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Suppose you plan to retire one day with $200,000 saved up. You plan to live on this money for twenty years, withdrawing an income at the end of every year to live on. You expect to earn 8% interest on your remaining balance for the entire twenty years. a) Calculate the regular income that you can withdraw for twenty years. [Use the =PMT function in Excel for this (fill out the relevant information in the function screen)] b) Produce a schedule in Excel which shows your year-ending balance for each year from 1 to 20 (it should reach $0 at the end of year 20) and produce a chart in Excel illustrating this balance. . . Will rate you well if you show your work step by step and explain yourself! **Will not rate you if not. Thank You!

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Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid’ask spreads amount to .4% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by trading costs I see where this question has been asked before, but my professor says the answer is incorrect. According to him, there should be two answers: one for buying, one for selling.

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Suppose the total book value of a firm is $6 million (that is, Debt + Equity = $6m), while the total book value of its debt alone is $4 million. The CFO estimates that the beta of the stock is currently 1.2 and that the expected risk premium on the market is 10 percent (i.e., RPm = (rmkt ‘ rrf ) = 10%). The U.S. Treasury note rate (rrf) is 4 percent. a. What is the required rate of return (rs) on this firm’s common stock? b. Estimate the weighted average cost of capital (WACC) assumingthe cost of debt is 14% (rd = 14%) and a tax rate of 40 percent.

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Why do you suppose financial statements are constructed on an accrual basis rather than a cash basis when cash accounting is so much easier to understand?

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How will the interest rate of Treasuries compare to that of corporate bonds if the government issues a guarantee against corporate bankruptcy?

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When Sharpe ratio=0.08 and Where Mean monthly return = 1.238% and Standard deviation = 6.724%, what do you conclude about performance evaluation and tail risk for funds pursuing option-like strategies?

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The Shannon Corporation has credit sales of $1,187,200.

Total assets turnover

3.20

times

Cash to total assets

1.80

percent

Accounts receivable turnover

20

times

Inventory turnover

16

times

Current ratio

1.95

times

Debt to total assets

40

percent

Using the above ratios, fill in the balance sheet. (Round your intermediate calculations and final answers to the nearest dollar amount. Omit the “$” sign in your response.)

SHANNON CORPORATION Balance Sheet 201X Assets

Liabilities and Stockholders’ Equity

Cash

$

Current debt

Accounts receivable

$

Long-term debt

Inventory

Total current assets

Total debt

Fixed assets

Net worth

Total assets

$

Total debt and stockholders’ equity

$

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Slow Ride Corp. is evaluating a project with the following cash flows: 29,300 11,500 14,200 16,100 13,200 9,700 The company uses an interest rate of 10 percent on all of its projects. A. Calculate the MIRR of the project using the discounting approach method. B.Calculate the MIRR of the project using the reinvestment approach method. C. Calculate the MIRR of the project using the combination approach method.

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You are purchasing a 20-year, zero coupon bond. The yield to maturity is 8.68 percent and the face value is 1000. What is the current market price?

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Startlight co. It’d has the following target capital structure: 40% on debt, 10% on preferred stock, and 50% on common stock. Right now the YTM on the existing debt is 8%, required return in preferred stock is 6%, and required return on common equity is 10 %. What is the WACC of Startlight if it would like to finance a new investment project?

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Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $144,000. The separate capital structures for Sterling and Royal are shown below:

Sterling

Royal

Debt @ 12%

$

Common stock, $5 par

Total

$

Common shares

(a)

720,000

Debt @ 12%

$

480,000

Common stock, $5 par

1,200,000

Total

96,000

Common shares

240,000 960,000

$

1,200,000 192,000

Compute earnings per share for both firms. Assume a 20 percent tax rate. (Round your answers to 2 decimal places. Omit the “$” sign in your response.)

Earnings per share Sterling

$

Royal

$

(b)

In part a, you should have gotten the same answer for both companies’ earnings per share. Assuming a P/E ratio of 20 for each company, what would its stock price be? (Use rounded Earnings per share.Round your answer to 2 decimal places. Omit the “$” sign in your response.)

Stock price

(c)

$

Now as part of your analysis, assume the P/E ratio would be 14 for the riskier company in terms of heavy debt utilization in the capital structure and 23 for the less risky company. What would the stock prices for the two firms be under these assumptions? (Note: Although interest rates also would likely be different based on risk, we will hold them constant for ease of analysis.) (Use rounded Earnings per share. Round your answers to 2 decimal places. Omit the “$” sign in your response.)

Stock price Sterling

$

Royal

$

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Rockne, Inc., has outstanding bonds that will mature in six years and pay an 8 percent coupon semiannually. If you paid $1,041.24 today and your required rate of return was 6.51 percent. What is the worth of the bond? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25.) Worth of the bond $ Did you pay the right price for the bond?

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You are scheduled to receive $13,000 in two years. When you receive it, you will invest it @ 8% per year for next 6 years. At the end of 8 years you will have: Answer a. $ 21,320 b. $ 20,629 c. $ 24,062 d. $ 19,240

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The best way to include inflation in a capital budgeting analysis is to build it into the revenue and expenses estimations True or False

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Blackburn Inc. has issued 30-year $1,000 face value, 10% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is

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The beta coefficient for Stock C is bC = 0.4 and that for Stock D is bD. (Stock D’s beta is negative, indicating that its rate of return rises whenever returns on most other stocks fall. There are very few negative-beta stocks, although collection agency and gold mining stocks are sometimes cited as examples.) a. If the risk-free rate is 9% and the expected rate of return on an average stock is 13%, what are the required rates of return on Stocks C and D? b. For Stock C, suppose the current price, Po,is $25; the next expected dividend, D1, is $1.50; and the stock’s expected constant growth rate is 4%. Is the stock in equilibrium? Explain, and describe what would happen if the stock were not in equilibrium.

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Maximizing the market value of the equity stock is said to be the main goal of a company? Which of the following is expected to play a huge part in in getting to this goal? (Points : 3) The timing of cash flows The risk associated with the cash flows The amount of cash flows two of the above a, b and c

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Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) increase from 9 to 12 percent. (a) What is the bond price at 9 percent? (Round “PV Factor” to 3 decimal places, intermediate calculations and final answers to 2 decimal places. Omit the “$” sign in your response.) Bond price $ (b) What is the bond price at 12 percent? (Round “PV Factor” to 3 decimal places, intermediate calculations and final answers to 2 decimal places. Omit the “$” sign in your response.) Bond price $ (c) What would be your percentage return on the investment if you bought when rates were 9 percent and sold when rates were 12 percent? (Enter the value as positive value. Round “PV Factor” to 3 decimal places, intermediate calculations and final answers to 2 decimal places.Omit the “%” sign in your response.) on investment % profit? or loss?

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You recently inherited $100,000 in a trust fund that pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account?

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1. New York Water (NYW) is considering whether to refund a $50 million, 14 percent coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $3 million of flotation costs on the 14 percent bonds over the 30-year life of that issue. NYW’s investment bankers have indicated that the company could sell a new 25-year issue at an interest rate of 11.67 percent in today’s market. A call premium of 14 percent would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NYW’s marginal tax rate is 40 percent. The new bonds would be issued at the same time the old bonds were called. a. What is the relevant refunding investment outlay? b. What are the relevant annual interest savings for NYW if refunding takes place? c. What are the relevant annual flotation cost tax effects for NYW if refunding takes place? d. What is the NYW bond refunding’s NPV? 2. The following data apply to Saunders Corporation’s convertible bonds: Maturity: 10 Stock price: $30.00 Par value: $1,000.00 Conversion price: $35.00 Annual coupon: 5.00% Straight-debt yield: 8.00% a. What is the bond’s conversion ratio? b. What is the bond’s conversion value? c. What is the bond’s straight-debt value? d. Based on your answers to the three preceding questions, what is the minimum price (or “floor” price) at which the Saunders’ bonds should sell?

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1. Find the NPV and PI of a project that costs $1,500 and returns $800 in year 1 and $850 in year 2. Assume the project’s cost of capital is 8 percent. 2. Find the IRR of a project that returns $17,000 three years from now if it costs $12,000.

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The Ackert Company’s last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm’s required return (rs) is 12.0%. What is the best estimate of the current stock price? PLS SHOW SOLUTION a.37.05 b.38.16 c.39.30 d.40.48 e.41.70

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1. Resnick Inc. is considering a project that has the following cash flow data. What is the project’s payback? Year

0

1

2

3

Cash flows

-$325

$200

$200

$200 Answer 1.

1.93 years

2.

1.63 years

3.

1.80 years

4.

1.67 years

5.

1.50 years

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1)Petty Productions Inc. recently issued 30-year $1,000 face value, 12% annual coupon bonds. The market discount rate for this bond is only 7%. What is the current price of this bond 2)Five years ago, Thompson Tarps Inc. issued twenty-five-year 10% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have risen and the yield to maturity on the Thompson bonds is now 12%. Given this information, what is the price today for a Thompson Tarps bond? 3)Phillips Fine Fixtures Inc. wishes to issue new bonds but is uncertain how the market would set the yield to maturity. The bonds would be 20-year, 7% annual coupon bonds with a $1,000 par value. Fisher has determined that these bonds would sell for $1,050 each. What is the yield to maturity for these bonds?

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1. Company X has an equity market-to-book ratio of 1.4. Assuming the market value equals its book value, what weights should it use for its WACC calculation? Assets= $1040, Debt=$500, Equity=$540. a. The debt weight for the WACC calculation is ___%. (round to 2 decimal places) b. The equity weight for the WACC calculation is ___%. (round to 2 decimal places) 2. Company Y has a $11.3 million debt issue outstanding, with a 5.8% coupon rate. The debt has semi-annul coupons, the next coupon is due in six months, and the debt matures in 5 years. It is currently priced at 93% of par value. a. The pre-tax cost of debt is__% per year. (round to 4 decimal places) b. If Company Y faces a 40% tax rate, the after-tax cost of debt is___%. (round to 4 decimal places) 3. CoffeeStop primarily sells coffee. It recently introduced premium coffee-flavored liquor. Suppose the firm faces a tax rate of 38% and collects the following information. If it plans to finance 10% of the new liquor-focused division with debt and the rest with equity, what WACC should it use for its liquor division? Assume a cost of debt of 5.2%, a risk-free rate of 3.7 %, and a risk-free premium of 6.4%. CoffeeStop: Brown-Forman Liquors: Beta=0.61 Beta=0.24 % Debt= 4% % Debt= 10% %Equity= 96% % Equity=90% The weighted average cost of capital is ____%. ( round to 2 decimal places) 4. Laurel, Inc. has debt outstanding with a coupon rate of 6.0% and a yield to maturity of 7.0% Its tax rate is 35%. Assume that the debt has annual coupons. The effective after-tax cost of debt is ____%. (round to 4 decimal places) 5. Outstanding debt of Home Depot trades with a yield to maturity of 8%. The tax rate of Home Depot is 35%. What is the effective cost of debt of Home Depot? a.5.8% b.6.5% c. 5.2 % d. 6.2% 6. Your estimate of the market risk premium is 6%. The risk-free rate of return is 5% and General Motors has a beta of 1.2. What is General Motors’ cost of equity capital? a. 12.2% b. 12.9% c. 11.4% d. 11.8% 7. A firm has a capital structure with $30 million in equity and $90 million of debt. The cost of equity capital is 10% and the pretax cost of debt is 6%. If the marginal tax rate of the firm id 40%, compute the weighted average cost of capital of the firm. a. 4.9% b. 4.6% c. 5.8% d. 5.2% 8. General Motors has a weighted average cost of capital of 10%. GM is considering investing in a new plant that will save the co. $20 million over each of the first 2 years, and then $15 million each year thereafter. If the investment is $150 million, what is the net present value (NPV) of the project? 9. GM has a weighted average cost of capital of 11%. GM is considering investing in a new plant that will save the co. $30 million over each of the first 2 years, and then $25 million each year thereafter. If the investment is $150 million, what is the net present value (NPV) of the project? 10. Verano Inc. has 2 business divisions- a software product line and a waste water cleanup product line. The software business has a cost of equity capital of 12% and the waste water clean-up business has a cost of capital of 8%. Verano has 50% of its revenue from software and the rest from the waste water business. Verano is considering a purchase of another business using equity financing. What is the appropriate cost of capital to evaluate the business? a. 8% b. 12% c. 11% d. 10%

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1. Define and discuss the importance of the time value of money concepts including compounding (future value), discounting (present value), and annuities. Why do organization leaders need to understand these concepts? 2. Describe or define and discuss a type of bond that interests you and how it is differentiated from other bonds. Then explain how valuing bonds is done and how interest rates affect their value. Consider the importance of the yield-to-maturity (YTM) in your post.

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1,000,000 in 20 years. Because of your incredulity, the GF has volunteered to deposit the present value of the $1,000,000 in a trust managed by a bank or insurance company of your choice. How much must the GF deposit if the investment earns 5 percent? 10 percent

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United Business forms capitol structure is as follows: Debt 35% Preferred Stock 15 Common Equity 50 The after tax cost of debt is 7%, the cost of preferred stock is 10%, and the cost of common equity(in the form of retained earnings) is 13%. Calculate United Business Forms weighted average cost of capital in a manner similar to Table 11-1 on page 332.

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U.S. government securities are used to construct yield curves because:

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Using the profitability index, which of the following mutually exclusive projects should be accepted? In providing your answer, you must present the profitability index (PI) along with your decision to accept/reject. Project A: NPV = $6,000; PV of outflows = $50,000 Project B: NPV = $10,000; PV of outflows = $120,000 Project C: NPV = $8,000; PV of outflows = $80,000

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The Required Rate of Return on any long term asset purchased by a corporation is the ____. A-IRR B-NPV C-WACC D-any of the above

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Using CAPM A stock has a beta of 1.15, the expected return on the market is 11 percent, and the risk-free rate is 5 percent. What must the expected return on this stock be. Please Provide Example with Illustration

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The revenue is $40,000, the cost of goods sold is $26,000, the selling, general and administrative expenses are $7,000, interest expense is $2,000, and depreciation is $3,000. what is the EBIT

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a. Find the FV of $1,000 invested to earn 10% annually 5 years from now.

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1.Discuss beta and its importance. 2.What type of investors would invest in a high beta stock and a low beta stock? 3.Is beta a useful tool? 4.Why were the beta estimates discussed in the reading different? Please answer all questions to get all the pts. Thanks

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A 15 year zero coupon bond was issued with $1000 par value to yield 8%. What is the approximate market value of the bond?

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4) What is the future value of your client’s savings in 359 months when he plans to retire? (HINT: Your client has savings Af?cAc‚¬” what will these be worth in the future?) FV359 months = 5) What is the new total amount needed by month 359 when he plans to retire?(HINT: This is easy to calculate Af?cAc‚¬” it is the amount from (3) minus the figure determined in (4).) 6) How much needs to be saved monthly so you will have sufficient savings to purchase this annuity from the Insurance company? (HINT: You need to solve for the annuity amount. You know the FVA, the interest rate, number of periods.)

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A 20 year bond pays 6% on a face value of $1000. If similar bonds are currently yielding 5%, what is the market value of the bond? Use annual analysis

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3. ____ equals the number of shares outstanding times the market price per share. Book value Stakeholders’ wealth Total shareholder wealth Economic value 4. The existence of divergent objectives between owners and managers is one example of a class of problems arising from ____. social responsibility concerns age differences between managers and owners agency relationships union-management relations 5. Which of the following (if any) are NOT financial intermediaries? commercial banks thrift institutions securities brokers all are financial intermediaries 7. All of the following are advantages of the corporate form of business organization EXCEPT: unlimited liability unlimited life flexibility in ownership change ability to raise capital

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In 2007 Beta Corporation earned gross profits of $760,000. a. Suppose that it is financed by a combination of common stock and $1 million of debt. The interest rate on the debt is 10%, and the corporate tax rate is 35%. How much profit is available for common stockholders after payment of interest and corporate taxes? b. Now suppose that instead of issuing debt Beta is financed by a combination of common stock and $1 million of preferred stock. The dividend yield on the preferred is 8% and the corporate tax rate is still 35%. How much profit is now available for common stockholders after payment of preferred dividends and corporate taxes?

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Last year, Mountain Gear had an inventory turnover rate of 6.8. This year, the turnover rate is 7.1. Based on this information, you know the: A. firm’s sales increased from last year to this year. B. firm’s sales decreased from last year to this year. C. average time it takes to sell inventory has increased. D. average time it takes to sell inventory has decreased.

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The one-year interest rate is 5%, the two-year rate is 6%. Using the pure expectations theory, what is the implied forward rate from year 1 to year 2?

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Yearly rates are 4%, 5%, 6%, 7%, and 8% for the next five years. Please compute and explain the expected interest rate for both the three and four-year bonds if we show the liquidity premiums to be 1.25%, 1%, .75%, .5%, and 0%.

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Over the years, McLaughlin Corporation’s stockholders have provided $35,000,000 of capital, when they purchased new issues of stock and allowed management to retain some of the firm’s earnings. The firm now has 2,000,000 shares of common stock outstanding, and the shares sell at a price of $32 per share. How much value has McLaughlin’s management added to stockholder wealth over the years, i.e., what is McLaughlin’s MVA? Round your answer to the nearest dollar, if necessary.

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A five-year project has an initial fixed asset investment of $295,000, an initial NWC investment of $27,000, and an annual OCF of ?$26,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 12 percent, what is this project’s equivalent annual cost, or EAC?

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29) The ________ model is usually considered the best of the capital budgeting decision-making models. A) Internal Rate of Return (IRR) B) Discounted Payback Period C) Profitability Index (PI) D) Net Present Value (NPV)

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Bruceton Hotels is an all-equity firm with 60,000 shares of stock outstanding. The stock has a beta of 1.27 and a standard deviation of 13.8 percent. The market risk premium is 9.1 percent and the risk-free rate of return is 4.2 percent. The company is considering a project that it considers riskier than its current operations so it wants to apply an adjustment of 1 percent to the project’s discount rate. What should the firm set as the required rate of return for the project?

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Your brother needs $24,256 at the end of eight years, and his only investment outlet is a 9 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, he can make an initial investment at the beginning of the first year.

(a)

What single payment could be made at the beginning of the first year to achieve this objective? (Round “PV Factor” to 3 decimal places and final answer to 2 decimal places. Omit the “$” sign in your response.) Single payment made?

(b)

What amount could he pay at the end of each year annually for eight years to achieve this same objective? (Round “FV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.) Amount to be paid?

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bond A is a premium bond with 8% coupon. bond B is a 4 % coupon bond currently selling at a discount. Both bonds make annual payments and have a yield to maturity (YTM) of 6%, and have 5 years till maturity. a. Estimate their prices (Bond prices). b. Estimate their current yields c. If interest rates remain unchanged by next year, estimate their prices a year from now. d. Estimate their first year capital gain yields. Hint: CGY = (P1-P0)/P0

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Twenty-five-year B-rated bonds of Katz Copying Machines were initially issued at par with a 12 percent yield. After 10 years the bonds have been upgraded to Aa2. Such bonds are currently yielding 10 percent. The bond has a par value of $1,000.

Determine the price of the bonds with 15 years remaining to maturity.(Round “PV Factor” to 3 decimal places and final answer to 2 decimal places. Omit the “$” sign in your response.)

Price of the bonds

$

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Boyer Corp. has outstanding borrowings. One of these borrowings is nonconvertible preferred stock (cumulative) with a par value of $75 and an annual dividend rate of 8.25%. This preferred stock is currently selling for $56.46 per share. What is the yield or return (r) on this preferred stock?

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ak Enterprises has a beta of 1.2, the market return is 8%, and the T-bill rate is 4%. What is their expected required return of common equity? Answer A.

Between 8% and 9%

B.

Between 11% and 12%

C.

Between 4% and 5%

D.

Between 7% and 8%

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A bank is negotiating a loan. The loan can either be paid off as a lump sum of $100,000 at the end of each of the next five years. If the interest rate on the loan is 10%, what annual payments should be made so that both forms of payment are quivalent?

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Based on the corporate valuation model, Bernile Inc.’s value of operations is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm’s value of equity, in millions? PLEASE SHOW SOLUTION AND EXPLAIN PLS Zhdanov Inc. forecasts that its free cash flow in the coming year, that is, at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm’s value of operations, in millions? PLEASE SHOW SOLUTION AND EXPLAIN PLS

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Assume a project has earnings before depreciation and taxes of $15,000, depreciation of $25,000, and that the firm has a 30 percent tax bracket. What are the after-tax cash flows for the project? Answer A.

$18,000

B.

$19,000

C.

A loss of $21,000

D.

None of these

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Assuming no arbitrage opportunities exist, the risk premium on the factor F2 portfolio should be ___________. A) 3% B) 4% C) 5% D) 6% E) none of the above

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Your aunt offers you the choice of $118,000 in 10 years or $40,000 today.

(a)

Calculate the present value of $118,000, if the money is discounted at 11 percent? (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.) Present Value?

(b)

Which choice should you choose?

$118,000 in 10 years. $40,000 today.

(c)

Calculate the present value, if you had to wait until 12 years to get the $118,000. (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.) Present Value?

(d)

Now, which choice should you choose?

$118,000 in 12 years. $40,000 today.

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An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $8,600,000 and will be sold for $1,900,000 at the end of the project. If the tax rate is 40 percent, what is the aftertax salvage value of the asset?

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Determine the size of the M1 money supply using the following information. Currency plus traveler’s checks $25 million, Negotiable CDs $10 million, Demand deposits $13 million Other checkable deposits $12 million Following are components of the M1 money supply at the end of last year. What will be the size of the M1 money supply at the end of next year if currency grows by 10 percent, demand deposits grow by 5 percent, other checkable deposits grow by 8 percent, and the amount of traveler’s checks stays the same? Currency $700 billion Demand deposits $300 billion Other checkable deposits $300 billion Traveler’s checks $10 billion Assume that a country estimates its M1 money supply at $20 million. A broader measure of the money supply, M2, is $50 million. The country’s gross domestic product is $100 million. Production or real output for the country is 500,000 units or products. a. Determine the velocity of money based on the M1 money supply. b. Determine the velocity of money based on the M2 money supply. c. Determine the average price for the real output

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in the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of (ei) equal to 20% and 20 securities

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7. a). Suppose you are buying your first condo for $145,000, and you will make a $15,000 down payment. You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate, with the first payment due in one month. What will your monthly payments be? b). Your sister turned 35 today, and she is planning to save $7,000 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund that’s expected to provide a return of 7.5% per year. She plans to retire 30 years from today, when she turns 65, and she expects to live for 25 years after retirement, to age 90. Under these assumptions, how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

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A 9-year project has an initial fixed asset investment of $45,360, an initial NWC investment of $4,320, and an annual OCF of -$69,120. The fixed asset is fully depreciated over the life of the project and has no salvage value. Required: If the required return is 19 percent, what is the project’s equivalent annual cost, or EAC? (Do not round your intermediate calculations.)

rev: 09_18_2012 $-76,794.12 $-37,394.09 $-68,710.53 $-84,877.71 $-80,835.92

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The 6 percent preferred stock of office max is selling for $62 a share. What is the firm’s cost of preferred stock if the tax rate is 34 percent and the par value per share is $100?

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If a 9 year project has an initial fixed asset investment of $45,360, an initial NWC investment of $4,320, and an annual OCF of -$69,120. The fixed asset is fully depreciated over the life of the project and has no salvage value. Required: If the required return is 19 percent, what is the project’s equivalent annual cost, or EAC?

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AA firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows: Project: A Project: B _____________________________ _____________________________ Initial End?of?Year Initial End?of?Year Investment Cash Flows Investment Cash Flows ?????????? ?????????? ?????????? ?????????? $40,000 20,000 $90,000 $40,000 20,000 40,000 20,000 80,000 The financial analyst determines that the firm’s required rate of return is 15%. His recommendation using NPV would be to A. select both B. select project A and reject B. C. reject project A and select B. D. reject both.

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Canadian Products is concerned about managing its operating assets and liabilities efficiently. Inventories have an average age of 110 days, and accounts receivable have an average age of 50 days. Accounts payable are paid approximately 40 days after they arise. The firm has annual sales of $36 million, its cost of goods sold represents 75% of sales, and its purchases 70% of cost of goods sold. Assume a 365-day year. a. Calculate the firm’s operating cycle (OC). b. Calculate the firm’s cash conversion cycle (CCC). c. Calculate the amount of total resources Canadian Products has invested in CCC. d. Discuss how management might be able to reduce the amount of total resources invested in CCC.

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Calculate the operating and cash cycles. Item Beginning Ending Inventory 10,583 12,412 Accounts Receivable 5,130 5,340 Accounts Payable 7,205 7,630 Credit Sales 97,381 Costs of goods sold 69,382

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CHAPTER 2: PROBLEM 4

Taxable Income

$285,000

Table 2.3 Taxable Income

Taxable Income (cont)

Tax Rate

0

50,000

15%

50,001

75,000

25%

75,001

100,000

34%

100,001

335,000

39%

335,001

10,000,000

34%

10,000,001

15,000,000

35%

15,000,001

18,333,333

38%

18,333,334

+

35%

Income Taxes = Average Tax Rate = Marginal Tax Rate =

(Note: No formula needed. Just input the correct rate from the Tax Rate column.)

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CHAPTER 4: PROBLEM 2 (a through c) A.

B.

C.

Present Value

2,500

2,500

2,500

Interest Rate

6%

8%

6%

Number of Years

10

10

20

A.

B.

C.

D.

Future Value =

15,451

51,557

886,073

550,164

Interest Rate

7%

9%

14%

16%

Number of Years

9

6

21

27

A.

B.

C.

D.

Present Value =

243

405

34,500

51,285

Future Value

307

896

162,181

483,500

Number of Years

3

10

13

26

A.

B.

C.

D.

Present Value =

625

810

18,400

21,500

Future Value

1,284

4,341

402,662

173,439

Interest Rate

7%

8%

13%

16%

Discount Rate

5%

13%

18%

Year 1:

$850

$850

$850

Year 2:

$740

$740

$740

Year 3:

$1,090

$1,090

$1,090

Year 4:

$1,310

$1,310

$1,310

Future Value =

CHAPTER 4: PROBLEM 3

Present Value =

CHAPTER 4: PROBLEM 4

Interest Rate

CHAPTER 4: PROBLEM 5

Number of Years (or Periods)

CHAPTER 4: PROBLEM 11

Present Value @ 5%, 13%, and 18% =

(Note: Use the built-in NPV formula in Excel.)

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CHAPTER 5: PROBLEM 2 A. Settlement (Think of Settlement as the beginning of the duration of the bond.) Maturity (Think of Maturity as the end of the duration of the bond.) Rate (Coupon Rate) YTM (Yield to Maturity or Required Rate of Return) Redemption (Bonds Face Value, Par Value, or Fair Price; Note that is $100, not $1,000. You make the adjustments by multiplying the answer by 10.) Frequency (Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1.) Basis (Always leave it blank.) Bond Price (The answer. But you need to multiply it by 10 to get the actual bond price.) Multiply by 10 (Microsoft gives the bond price in 2 digits. You need to multiply it by 10 to get the actual bond price.) CHAPTER 5: PROBLEM 3 Settlement (Think of Settlement as the beginning of the duration of the bond.) Maturity (Think of Maturity as the end of the duration of the bond.) Rate (Coupon Rate) Pr (The bonds price per $100 face value) Redemption (Bonds Face Value, Par Value, or Fair Price; Note that is $100, not $1,000.) Frequency (Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1.) Basis: (Always leave it blank.) YTM CHAPTER 6: PROBLEM 2 Dividend Payment $2.85 Dividend Growth Rate 4.50% ZYX Stock Price $84 Required Return = CHAPTER 6: PROBLEM 4 Dividend $2.90 Dividend increase per year 4.75% Required Return (Return on Investment) 11% Stock Price =

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CHAPTER 5: PROBLEM 2 Microsoft has issued a bond with the following characteristics: Par $1000 Coupon rate:7% Semianual payments Calculate the price of this bond if the YTM is 7%

A. Settlement

(Think of Settlement as the beginning of the duration of the bond.)

Maturity

(Think of Maturity as the end of the duration of the bond.)

Rate

(Coupon Rate)

YTM

(Yield to Maturity or Required Rate of Return)

Redemption

(Bonds Face Value, Par Value, or Fair Price; Note that is $100, not $1,000. You make the adjustments by multiplying the answer by 10.)

Frequency

(Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1.)

Basis

(Always leave it blank.)

Bond Price

(The answer. But you need to multiply it by 10 to get the actual bond price.)

Multiply by 10

(Microsoft gives the bond price in 2 digits. You need to multiply it by 10 to get the actual bond price.)

CHAPTER 5: PROBLEM 3 Wathers Umbreall Corp. issues 15 years bonds 2 years ago at coupon rate of 7.8%. The bonds make semianual payments. If these bonds currently sell for 105% of par value, what is the YTM?

Settlement

(Think of Settlement as the beginning of the duration of the bond.)

Maturity

(Think of Maturity as the end of the duration of the bond.)

Rate

(Coupon Rate)

Pr

(The bonds price per $100 face value)

Redemption

(Bonds Face Value, Par Value, or Fair Price; Note that is $100, not $1,000.)

Frequency

(Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1.)

Basis:

(Always leave it blank.)

YTM

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CHAPTER 2: PROBLEM 5

Sales

$25,300

Costs

$9,100

Depreciation Expense

$1,700

EBIT Interest Expense

$950

EBT Taxes @ 40% Net Income Tax Rate

40%

Operating Cash Flow =

CHAPTER 3: PROBLEM 2

Debt/Equity Ratio

0.75

Return on Assets

10.40%

Total Equity

$900,000

Equity Multiplier = Return on Equity = Net Income =

CHAPTER 3: PROBLEM 6

ROE

13%

Payout Ratio

25%

Retention Ratio

(Note: You must calculate the retention ratio first then the sustainable growth rate.)

Sustainable Growth Rate =

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CHAPTER 2: PROBLEM 1

Current Assets

$7,500

Net Fixed Assets

$28,900

Current Liabilities

$5,900

Long-Term Debt

$18,700

Shareholder Equity = Net Working Capital =

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QUESTION 1 The current price of a stock is $94, and a three-month European call option with a strike price of $95 currently sells for $4.70. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2,000 call options (20 contracts). Both strategies involve an investment of $9,400. How high does the stock price have to rise in 3 months for the option strategy to be more profitable than the stock strategy? In other words, at what stock price, will the 2 strategies result in the same payoff? Hint: Create a spreadsheet with stock prices in 3 months ranging from $80 to $120. In the next 2 columns, calculate the payoffs for stock investment and option investment. Hint: The payoff of the call option is max(S 95, 0), where S is the stock price. QUESTION 2 A company enters into a long futures contract to buy 5,000 bushels of wheat for 250 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. a. If futures price becomes 260 cents per bushel, what will be the cumulative gain? b. What price change would lead to a margin call? QUESTION 3 A fund manager has a portfolio worth $20 million with a beta of 1.4. The manager is concerned about the performance of the market over the next two months and plans to use three-month futures contracts on the S&P 500 to hedge the risk. The current index level is 1,850 and one futures contract is on 250 times the index (i.e., the index multiplier is 250). The risk free rate is 4.0% per annum and the dividend yield on the index is 2.0% per annum. The current three-month futures price is $1,900. a. What position should the fund manager take to hedge exposure to the market over the next two months? In other words, how many futures contracts does the manager have to buy or sell? Specify whether itâs a long (=buy) or short (=sell) position. b. Calculate the effect of your strategy on the fund managerâs returns if the index in two months is 1600, 1700, 1800, 1900 and 2000. Assume in 2 months, the one month futures price will be 0.25% higher than the index level. For example, if the index is 1600 two months from now, the index futures price will be 1.0025*1600 = 1604.00. c. Are the total values (hedged values = stock portfolio plus futures position) always greater than the stock (=unhedged) values, no matter what the index becomes in 2 months? If not, does it mean the hedge was unsuccessful? Explain.

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Chick ‘N Fish is considering two different capital structures. The first option consists of 25,000 shares of stock. The second option consists of 15,000 shares of stock plus $150,000 of debt at an interest rate of 7.5 percent. Ignore taxes. What is the break-even level of earnings before interest and taxes (EBIT) between these two options? Answer $2,813

$3,134

$16,410

$28,125

$31,338

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Clayton wants to sell stock to raise capital. He plans to issue a dividend of $10.00 next year and growing at a 5% rate forever. What is the intrinsic value of this stock if the discount rate is 6%?

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Your client, a man, is currently 35 year old and he wants to retire when he is 65 years old (exactly 30 years from now). He would like his retirement income to be equivalent to $6,000 per month, adjusted for inflation. You estimate the inflation rate for the next 30 years to average 3% annually. He anticipates purchasing a guaranteed retirement annuity from an insurance company the month before he retires (359 months from now). The insurance company will use the actuarial life expectancy table below to determine the cost of the annuity. As you can see, he is expected to live about 16 years (so, he should expect to purchase a 193 month annuity) following retirement. They will add a 4% premium to the pure premium calculated from their actuarial table.He has $25,000 in savings today that will be invested until he retires. Given a rate of return of 6% (annually but compounded monthly) for the foreseeable future for both your client and the insurance company, how much does he need to save each month (359 months) for the next 29 years and 11 months (first payment to be made in one month) if he is to afford to purchase the annuity contract? (Assume that you make the last monthly payment in 29 years and 11 months, the month before you receive your first monthly retirement payment.) 1) What dollar amount will be needed per month at retirement age? (HINT: You want the equivalent to 6,000 per month when you retire; however, inflation will be 3% over the next 30 years! So you want to calculate the FV in 30 years.) FV30 years = 2) OK, in part (1) you calculated the monthly dollar amount needed for retirement. Now you need to determine what the PV of this stream of retirement income will be (one month before retirement). HINT: This will be the PVA of the stream of monthly retirement income ‘ from part (1) ‘ for 193 months. Remember this PV is in the future when you are ready to retire.) PVAmonth359 = PVA193 months= 3) What will the price of this annuity? (HINT: This next step is easy ‘ you need to determine what this annuity will cost. The figure you arrived at in part (2) is the pure premium. Now you need to increase this by the amount the insurance company adds to the pure premium.) Price =PVAmonth359x Premium = 4) What is the future value of your client’s savings in 359 months when he plans to retire? (HINT: Your client has savings ‘ what will these be worth in the future?) FV359 months = 5) What is the new total amount needed by month 359 when he plans to retire? (HINT: This is easy to calculate ‘ it is the amount from (3) minus the figure determined in (4).) 6) How much needs to be saved monthly so you will have sufficient savings to purchase this annuity from the insurance company? (HINT: You need to solve for the annuity amount. You know the FVA, the interest rate, number of periods.)

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A clinic had payment terms from one of its suppliers of 3/20, net 60. What is the approximate cost of this trade credit?

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The choice among alternative current asset financing policies involves which kind of trade off? Profit/loss Risk/return Customer satisfaction / loss of sales None of the above

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A new common stock that paid a $1.79 dividend last year. The par value of stock is $16 and the firms dividends per share have a growing rate of 7.7%. The price of this stock is $28.21. A preferred stock paying a 10.2% dividend on a $123 par value. the preferred shares are currently selling for $154.78. A bond selling to yield 13.1% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.

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Consider the following information:

Rate of Return If State Occurs State of

Probability of

Economy

State of Economy

Stock A

Stock B

Stock C

Boom

0.15

0.350

0.450

0.330

Good

0.45

0.120

0.100

0.170

Poor

0.35

0.010

0.020

Af?cA?†’0.050

Bust

0.05

Af?cA?†’0.110

Af?cA?†’0.250

Af?cA?†’0.090

Your portfolio is invested 30 percent each in A and C and 40 percent in B. What is the expected return of the portfolio? What is the variance of this portfolio? What is the standard deviation of this portfolio?

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The last dividend paid by Abbot Labs was $1.00. Abbot’s growth rate is expected to be a constant 8% for three years, after which the growth rate is expected to be 10%. Investors require a return of 16% on stocks like Abbot. What should the price of Abbot’s stock be? Answer $15.36

$16.36

$17.00

$17.40

$18.40

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The next dividend (Div1) is $1.80, the growth rate (g) is 6%, and the required rate of return (r) is 12%. What is the stock price, according to the constant growth dividend model?

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Desai Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle? Annual sales =$45,000 Annual cost of goods sold =$38,000 Inventory =$4,500 Accounts receivable =$1,800 Accounts payable =$2,500 PLEASE SHOW SOLUTION AND DETAILED ANSWER PLS Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.) PLEASE SHOW SOLUTION AND DETAILED ANSWER PLS Sapp Trucking’s balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $22.50 per share; stockholders’ required return, rs, is 14.00%; and the firm’s tax rate is 40%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. PLEASE SHOW SOLUTION AND DETAILED ANSWER PLS

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As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: Year Project X Project Z 0 -$100,000 -$100,000 1 50,000 10,000 2 40,000 30,000 3 30,000 40,000 4 10,000 60,000 We only have $100,000 to invest. What is your recommendation? Explain your recommendation.

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Consider the following projects, X and Y where the firm can only choose one. Project X costs $1500 and has cash flows of $678, $652, $347, $111, $54, $16 in each of the next 6 years. Project Y also costs $1500, and generates cash flows of $738, $693, $405 for the next 3 years, respectively. NOTE: Current WACC = 10% for Question (A), (B), (C), and (D). Please explain each questions by the full steps including the formula that are used and variables’ value plugged in, and all of inputs for the calculator solutions. A) Draw the timelines for both projects: X and Y. B) Calculate the projects’ NPVs, IRRs, payback periods. C) If the two projects are independent, which project(s) should be chosen? D) If the two projects are mutually exclusive, which projects should be chosen? E) Plot NPV profiles for the two projects. Identify the projects’ IRRs on the graph. F) If the WACC were 5 percent, would this change your recommendation if the projects were mutually exclusive? If the WACC were 15 percent, would this change your recommendation? Explain your answers. G) There is a “crossover rate: of X’s and Y’s NPV curves, and mark it on the graph with Point O. Explain in words what this rate is and how it affects the choice between mutually exclusive projects. H) If it possible for conflicts to exist between the NPV and the IRR when independent projects are being evaluated? Explain your answer.

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Consider the following information:

State of Economy

Probability of State of Economy

Portfolio Return if State Occurs

Recession

0.19

?

0.13

Normal

0.55

0.15

Boom

0.26

0.35

Calculate the expected return. (Round your answer to 2 decimal places. (e.g., 32.16)) Expected return

?? %

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consider a single factor APT, portfolio A has a beta of 2.0 and an expected return of 22%. portfolio B has a beta of 1.5 and an expected return of 17%. the risk free rate of return is 4%. if you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio ………………………….. and a long position in portfolio ………………..

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What is the EAR if the APR is 5% and compounding is quarterly?

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Dweller, Inc. is considering a four-year project that has an initial after-tax outlay or after-tax cost of $80,000. The future cash inflows from its project are $40,000, $40,000, $30,000 and $30,000 for years 1, 2, 3 and 4, respectively. Dweller uses the net present value method and has a discount rate of 12%. Will Dweller accept the project? A) Dweller rejects the project because the NPV is -$3,021. B) Dweller accepts the project because the NPV is greater than $28,000. C) Dweller rejects the project because the NPV is less than -$4,000. D) Dweller accepts the project because the NPV is greater than $30,000.

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Is the DCF approach or the market multiple approach best for valuing a business? Are there conditions when one approach is preferred over the other?

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Debt:

8,600 7.9 percent coupon bonds outstanding, $1,000 par value, 24 years to maturity, selling for 104.5 percent of par; the bonds make semiannual payments.

Common stock:

211,000 shares outstanding, selling for $83.1 per share; beta is 1.16.

Preferred stock:

12,100 shares of 5.80 percent preferred stock outstanding, currently selling for $97.9 per share.

Market:

7.05 percent market risk premium and 4.85 percent risk-free rate.

Required: Calculate the WACC.

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Define and discuss the concepts of risk and return. Discuss the importance of portfolio diversification and the relationship to risk and return. Risk and return as to market History and Capital model (CAPM) (address both)

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Consider the following information:

Rate of Return if State Occurs

State of

Probability of

Economy

State of Economy

Stock A

Stock B

Stock C

Boom

0.15

0.33

0.43

0.23

Good

0.55

0.18

0.14

0.12

Poor

0.25

?

0.05

?

0.08

?

0.06

Bust

0.05

?

0.13

?

0.18

?

0.10

a- Your portfolio is invested 26 percent each in A and C, and 48 percent in B. What is the expected return of the portfolio? (Round your answer to 2 decimal places. (e.g., 32.16)) Expected return

??%

B1- What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places. (e.g., 32.16161)) Variance

B2- What is the standard deviation? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Standard deviation

??%

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Consider the following information:

Rate of Return if State Occurs State of Economy

Probability of State of Economy

Stock A

Stock B

Stock C

Boom

0.25

0.4

0.51

0.32

Good

0.45

0.15

0.13

0.15

Poor

0.05

0.12

?0.16

?0.09

Bust

0.25

?0.15

?0.4

?0.13

Required:

(a)

Your portfolio is invested 34 percent each in A and C, and 32 percent in B. The expected return of the portfolio is ________percent.

(b)

The variance of this portfolio is _________ and standard deviation is ________ percent.

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Consider the following information:

Rate of Return If State Occurs

State of

Probability of

Economy

State of Economy

Stock A

Stock B

Recession

0.22

0.10

?

0.17

Normal

0.52

0.13

0.12

Boom

0.26

0.18

0.29

Calculate the expected return for the two stocks. (Round your answers to 2 decimal places. (e.g., 32.16))

Expected return

Stock A

??%

Stock B

??%

Calculate the standard deviation for the two stocks. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) Standard deviation

Stock A

??%

Stock B

??%

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What is the current price of Laser bonds that will pay a total of 50 semiannual coupons of $80 each over the remainder of its life? The bond has a 11.50% yield to maturity. Also, what is the bonds coupon rate? Please answer in detail and show work and the correct answer

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Help with work please. I just need the last two problems. The first one is right

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you hold a diversified portfolio consisting of a $10,000 investment in each of 20 different common stocks. The portfolio’s beta is equal to 1.2. You have decided to sell one of your stocks that has a beta of 0.7 for 10,000. You plan to use the proceeds to purchase another stock that has a beta equal to 1.4. What will the beta be of the new portfolio?

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Home DAfŠcor & More is considering a proposed project with the following cash flows. Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 16 percent? Why or why not? Year

Cash Flow

0

-$375,000

1

104,500

2

-35,600

3

244,700

4

271,000

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Please help and show work

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Howell Enterprises is forecasting EPS of $4.00 per share for next year. The firm has 10,000 shares outstanding, it pays 12 percent interest on its debt, and it faces a 40 percent marginal tax rate. Its estimated fixed costs are $80,000 while its variable costs are estimated at 40 percent of revenue. The firm’s target capital structure is 40 percent equity and 60 percent debt and it has total assets of $400,000. On what level of sales is Howell basing its EPS forecast? Please show work

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Given the following data for year-1: Profits after taxes = $20 millions; Depreciation = $6 millions; Interest expense = $4 millions; Investment in fixed assets = $12 millions; Investment in working capital = $4 millions. Calculate the free cash flow (FCF) for year-1:

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Please help with these questions!! 1. Discuss the use of each major financial statement in financial management. Explain the use of pro forma financial statements in financial planning and forecasting. 2. The Time Value of Money is a concept that is central to the discipline of finance. Explain the concept and its relationship to maximizing shareholder wealth. 3. Explain factors that make the valuation of common stocks more complicated than the valuation of bonds and preferred stocks. Explain why the valuation models for a perpetual bond, preferred stock, and common stock with constant dividend payments (zero growth) are virtually identical. 4. A company has a project under consideration that will generate an irregular cash flow for the next 10 years. It wants to make a decision whether to proceed with the option or not. What factors would you consider in making your financial evaluation? What tables might you use from the Compound Interest charts and why? 5. A bond will sell at par, discount or a premium price. What determines the price of a bond? Given today’s economy, which pricing scheme would be most acceptable to you and why? Explain your answers with support. 6. In the theoretical world of Miller and Modigliani, what role does dividend policy play in the determination of share values? What role do most financial managers think dividend policy plays in determining share values? Explain factors to which differences between the two views may be attributed. 7. Why do you think it is easier for firms with weak credit positions to obtain lease financing than bank loan financing? Explain the difference between economic and financial definitions of business failure. What alternatives are available to a failing firm?

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The growth rate for the firm’s common stock is 7%. The firm’s preferred stock is paying an annual dividend of $3. What is the preferred stock price if the required rate of return is 8%?

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Which of the following statements is CORRECT? A) For a project with normal cash flows, any change in the WACC will change both the NPV and the IRR. B) To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the WACC to find the PV. C)The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. However, the MIRR method assumes reinvestment at the MIRR itself. D)If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the higher IRR probably has more of its cash flows coming in the later years. E) If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years.

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Which of the following items is not considered as a part of the net investment calculation? Answer a. the first year’s net cash flow b. installation and shipping charges c. increase in net working capital d. salvage of an old piece of equipment that is being replaced

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Flowton Products enjoys a steady demand for stainless steel infiltrators used in a number of chemical processes. Revenues from infiltrator division are $50 million a year and production costs are $47.5 million. However, the 10 high-precision Munster stamping machines that are used in the production process are coming to the end of their useful life. One possibility is simply to replace each existing machine with a new Munster. These machines would cost $800,000 each and would not involve any additional operating costs. The alternative is to buy 10 centrally controlled Skilboro stampers. Skilboros cost $1.25 million each, but compared to the Munster, they would produce a total saving in operator and material costs of $500,000 a year. Moreover, the Skilboro is sturdily built and would last 10 years, compared with an estimated 7-year life for the Munster. Analysts in the infiltrator division have produced the accompanying summary table, which shows the forecast total cash flows from the infiltrator business over the life of each machine. Flowton’s standard procedures for appraising capital investments involve calculating net present value, internal rate of return, and payback, and these measures are also shown in the table. As usual, Emily Balsam arrived early at Flowton’s head office. She had nevr regretted joining Flowton’s head office. She had never regretted joining Flowton. Everything about the place, from the mirror windows to the bell fountain in the atrium, suggested a classy outfit. Ms Balsam sighed happily and reached for the envelope at the top of her in-tray. It was an analysis from the infiltrator division of the replacement options for the stamper machines. Pinned to the paper was the summary table of cash flows and a note from the CFO, which read, “Emily, I have read through 20 pages of excruciating detail and I still don’t know which of these machines we should buy. The NPV calculation seems to indicate that the Skilboro is best, while IRR and payback suggest the opposite. Would you take a look and tell me what we should do and why. You also might check that the calculations are OK.” Can you help Ms. Balsam by writing a memo to the CFO? You need to justify your solution and also to explain why some or all of the measures in the summary tables are inappropriate. Cash Flows (millions of dollars) Year: 0 1-7 8 9 10 Munster Investment -8.0 Revenues 50.0 0.0 0.0 0.0 Costs 47.5 0.0 0.0 0.0 Net Cash Flow -8.0 2.5 0.0 0.0 0.0 NPV at 15% $2.40 million IRR 0.2 Payback Period 3.2 years Skilboro Investment -12.5 Revenues 50.0 50.0 50.0 50.0 Costs 47.0 47.0 47.0 47.0 Net Cash Flow -12.5 3.0 3.0 3.0 3.0 NPV at 15% $2.56 million IRR 20.20% Payback Period 4.2 years Cash Flows (millions of dollars) Year: 0 1-7 8 9 10 Munster Investment -8,000,000.00 Revenues 50,000,000 0.0 0.0 0.0 Costs 47,500,000 0.0 0.0 0.0 Net Cash Flow -8,000,000.00 2,500,000 0.0 0.0 0.0 NPV at 15% (5,149,872.45) 2,173,913.04 IRR 24.5% -0.7 Payback Period 3.2 years Skilboro Investment -12.5 Revenues 50.0 50.0 50.0 50.0 Costs 47.0 47.0 47.0 47.0 Net Cash Flow -12.5 3.0 3.0 3.0 3.0 NPV at 15% $2.56 million IRR 20.20% Payback Period 4.2 years

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The following set of cash flows, Year

Cash Flow

0

‘$7,300

1

4,600

2

4,600

3

3,800

Required: (a)

What is the NPV at a discount rate of 0 percent?

(b)

What is the NPV at a discount rate of 15 percent?

(c)

What is the NPV at a discount rate of 24 percent?

(d)

What is the NPV at a discount rate of 29 percent?

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The corporate form of organization is maintained by publicly traded companies and there are approximately 6000-8000 such companies operating in the U.S. Answer True False

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You own a portfolio that is 28 percent invested in Stock X, 43 percent in Stock Y, and 29 percent in Stock Z. The expected returns on these three stocks are 9 percent, 12 percent, and 14 percent, respectively.

Required: What is the expected return on the portfolio?

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A portfolio’s expected return is 12%, its standard deviation is 20%, and the risk-free rate is 4%. Which of the following would make for the greatest increase in the portfolio’s Sharpe ratio?

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You have a portfolio with a value of $340,181 and a beta of 1.3. You want to hedge using index call options. The index option has a multiplier of 100, a strike price of $1,389 and the delta of the index options is 0.7 . How many contracts would you need to hedge the portfolio?

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You own nine convertible bonds. These bonds have a 7 percent coupon, a $1,000 face value, and mature in 6 years. The bonds are convertible into shares of common stock at a conversion price of $25. How many shares of stock will you receive if you convert all of your bonds?

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Potential savings from a lock box system will be reduced by The additional processing time required The additional mailing time required local banks charges the additional time required to receive checks

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An investment project has annual cash inflows of $8,700, $8,200, $7,500, and $8,800, and a discount rate of 8 percent. If the initial cost is $9,100, the discounted payback period for these cash flows is _____ Please explain how you find the answer? I dont understand!

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Im tring to screen shot the pic of the question. It is doesnt work then here is the link. http://ezto.mhecloud.mcgraw-hill.com/hm.tpx

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Describe the impact of the solicitation process and how it determines the preparation of your bid.

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JKL issued a dividend last year on its common stock of $1.35. It promises to increase dividends by 2% every year, forever. What will be their stock dividend in 5 years?

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An investment is made at 5.5% simple interest. At the end of one year the total of the investment is $3055. How much was originally invested? Please show calculations.

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The amount by which a firm’s tax bill is reduced as a result of the depreciation expense is referred to as the depreciation:

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In performing a capital budgeting comparison of two mutually exclusive pieces of equipment which will be used to replace an old obsolete piece of equipment all of the following are relevant except for The firms tax rate The applicable depreciation schedule the appropriate cost of capital the past sunk cost of the equipment to be replaced

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Peterborough Trucking just purchased some fixed assets that are classified as 3-year property for MACRS. The assets cost $10,600. What is the amount of the depreciation expense in year 3? MACRS 3-Year Property YEAR

RATE

1

33.33%

2

44.45%

3

14.81%

4

7.41%

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Peter buys an item from Sue and signs a note to pay $300 in 10months. Then, 1 month(s) before the note comes due, Sue sells thenote to a bank which discounts the note based on 12.5% simpleinterest. How much did the bank pay Sue for the note?

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What is the NPV for the following project cash flows at a discount rate of 12.50%? CFO=($750), CF1= $500. CF2=$600, CF3=$700

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In the NPV Model, all cash flows are stated ________. A) in present value or current dollars, and the outflow is “netted” against the total inflow to see if the gross amount is positive or negative B) in future value dollars, and the total inflow is “netted” against the outflow to see if the net amount is positive or negative C) in present value or current dollars, and the total inflow is “netted” against the initial outflow to see if the net amount is positive or negative D) in future dollars, and the initial outflow is “netted” against the total inflow to see if the net amount is positive

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What is the npv of a project that cost 50,000 and return 30,000 annually for three years if the opportunity cost of capital is 12%

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A put option on a stock with a current price of $53 has an exercise price of $55. The price of the corresponding by Supreme Savings” href=”http://site.Transtutors.com/s/_widget/tiny_mce/#”>call option is $5.25. According to put-call parity, if the effective annual risk-free rate of interest is 5% and there are four months until expiration, what should be the value of the put?

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The Nurrenberns, a family of three filing a joint return, have the following information to prepare their federal income tax. Use the current (2012) tax schedule for your computations. (Note: As most often the case, you want to minimize the tax liability).

$72,500

Salaries

Interest income, corporate bonds

$1,050

Interest income, municipal (general purpose, non-revenue) bonds

$1,300

State and local income taxes2

$900

Real estate taxes2

$800

General sales taxes2

$650

Home mortgage interest

$3,350

Credit card interest

$1,020

Cash contributions to charities

$350

Interest on education loans

$600

Hospital and doctor expenses

$1,400

Federal income taxes withheld

$7,800

Compute the following: a. Adjusted gross income b. Taxable income c. Tax liability d. Tax due or tax refund e. Marginal tax rate f. Average tax rate g. Average effective tax rate

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If needs for funds are seasonal a firm mayh not want to commit itself to long term debt for all but the following reasons Administrative costs are high compared to short term debt Long term agreements typically contain more restrictive covenants than short term The interest rate is generally lower on short term debt Long term debt can never be repaid early

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A new machine’s is 50,000 plus an additional 10,000 for shiping and installation. The machine falls into the MACRS three year class, and hence the tax depreciation allowances are .33, .45 and .15 in years 1, 2 and 3 respectively. The machine will be sold at the end of three years for 20,000. The machine will have no effect on revenues, but will save 20,000 per year in before-tax operating costs. The firm’s tax rate is 40 percent and its approriate cost of capital is 10%. What is the project’s net investment outlay in year 0?

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New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14 percent coupon, 30-year bond issue that was issued five years ago. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67 percent in today’s market. A call premium of 14 percent would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NYW’s marginal tax rate is 40 percent. The new bonds would be issued when the old bonds are called. The amortization of flotation costs reduces taxes, and thus provides an annual cash flow. What will the net increase or decrease in the annual flotation cost tax savings be if refunding takes place?

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A long-term creditor would be most interested in which of the following ratios: Answer current ratio

quick ratio

profit margin

interest coverage ratio

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Three months ago, Central Supply stock was selling for $51.40 a share. At that time, you purchased five put options on the stock with a strike price of $52 per share and an option price of $0.60 per share. The option expires today when the value of the stock is $42.70 per share. What is your net profit or loss on this investment? Ignore trading costs and taxes.

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What is the maximunm amount tht a firm should consider paying for a project that will return 12,000 annually for 6 years if the opportunity cost is 12%?

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The ________ method of capital budgeting is a ratio of the present value of cash inflows divided by the initial investment. A) net present value B) payback period C) profitability index D) internal rate of return

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Leasing companies often promote leasing by arguing that; 1) leasing avoids the large cash outlay that would be required to buy the asset, and 2) leasing allows businesses to use more debt because leasing keeps the liability off the books. Are these arguments valid? If so, when? If not, when?

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Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $228,000, has a four-year life, and requires $72,000 in pretax annual operating costs. System B costs $324,000, has a six-year life, and requires $66,000 in pretax annual operating costs. Suppose LISC always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 35 percent and the discount rate is 10 percent. Calculate the EAC for both conveyor belt systems.(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16)) Find EAC

System A

??$

System B

??$

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Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $264,000, has a four-year life, and requires $81,000 in pretax annual operating costs. System B costs $372,000, has a six-year life, and requires $75,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 34 percent and the discount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) NPV

System A

??$

System B

??$

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Jones Enterprises has the following capital structure: Long-term Debt $100,000 Preferred Stock $400,000 Common Equity $500,000 Debt has an after tax cost of 5.6%, Preferred Stock 7.5 %, and Common Equity 9.2%. Calculate the weighted average cost of capital for Jones Enterprises (in terms of % to one decimal point).

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Johnson Construction Inc. has issued 20-year $1,000 face value, 8% annual coupon bonds, with a yield to maturity of 10%. The current price of the bond is

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You purchased six call option contracts on ABC stock with a strike price of $32.50 when the option was quoted at $1.65. The option expires today when the value of ABC stock is $34.60. Ignoring trading costs and taxes, what is the net profit or loss on this investment?

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Returns

Year

X

Y

1

18

2

21

33

3

12

14

4



%

15

14

5



%

19

10

23

Using the returns shown above, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y. (Round your percent answers to 2 decimal places. (e.g., 32.16) and variances to 5 decimal places. (e.g., 32.16161)) X

Y

Average returns

? %

? %

Variances

?

?

Standard deviations

? %

? %

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question The government is considering imposing taxes on the sellers of the following food products. 1. The first tax they are considering is a $1.00 per gallon tax on 2% milk. 2. The second is a $1.00 per gallon on lactose-free milk. Assume that responsiveness of sellers/producers of these two dairy products to price changes is the same. Also assume that the two markets are comparable in size and the two commodities have comparable per unit prices. a. What would you expect the statutory and economic incidence of each of the two taxes to be? Explain. b. Which of the two taxes will result in the largest deadweight loss (excess burden) relative to the market size? Explain. Use graphical analysis techniques learned in class to aid your explanations for (a) and (b) above.

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question Jabus and Kelsey are a married couple with no children. Each earns $120,000 per year, and their combined household adjusted gross income is $240,000. Anthony and Caitlin, who are married as well, also have $240,000 in combined household adjusted gross income and no children. However, Caitlin earns all of the income; Anthony does not work. Page 2 of 2 a. Use the 2012 tax rates for married couples filing jointly1 to compute how much income tax each couple owes. Assume that both take the personal exemption and standard deduction. b. Does either couple pay a “marriage tax?: Does either couple receive a “marriage benefit?: (Hint: To answer this question, you will need to look up the 2012 tax rates for single individuals and calculate combined tax liability.)

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the risk free rate is 4 percent. the expected market rate of return is 11 percent. if you expect CAT with a beta of 1.0 to offer a rate of return of 11 percent, you should ……….

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Question 1: Aguilera Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year

Unit Sales

1

80,000

2

93,000

3

107,000

4

102,000

5

83,000

Production of the implants will require $1,590,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $1,490,000 per year, variable production costs are $260 per unit, and the units are priced at $375 each. The equipment needed to begin production has an installed cost of $20,900,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 25 percent of its acquisition cost. AAI is in the 30 percent marginal tax bracket and has a required return on all its projects of 19 percent. Refer to Property Class Chart Property class

year

three-year

five- year

seven- year

1

33.33%

20.00%

14.29%

2

44.45

32.00

24.49

3

14.81

19.20

17.49

4

7.41

11.52

12.49

5

11.52

8.93

6

5.76

8.92

7

8.93

8

4.46

a- What is the NPV of the project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) b- What is the IRR? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

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Question 1 Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.85 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,130,000 in annual sales, with costs of $825,000. The tax rate is 34 percent and the required return on the project is 11 percent. What is the project’s NPV? (Round your answer to 2 decimal places. (e.g., 32.16)) what is NPV? Question 2: Dog Up! Franks is looking at a new sausage system with an installed cost of $495,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $73,000. The sausage system will save the firm $175,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $32,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

what is NPV? question 3 Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $0.54 and lasts 1,000 hours. A 15-watt CFL, which provides the same light, costs $3.85 and lasts for 12,000 hours. A kilowatt-hour of electricity costs $0.130, which is about the national average. A kilowatt-hour is 1,000 watts for 1 hour. If you require a 10 percent return and use a light fixture 500 hours per year, what is the equivalent annual cost of each light bulb? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16)) Equivalent annual cost

60-watt incandescent light bulb

??$

Compact fluorescent lamps

??$

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the semistrong form of the efficient market hypothesis asserts that stock prices:

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Question 3 Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,048,000 and will last for six years. Variable costs are 40 percent of sales, and fixed costs are $195,000 per year. Machine B costs $5,229,000 and will last for nine years. Variable costs for this machine are 35 percent of sales and fixed costs are $130,000 per year. The sales for each machine will be $10.1 million per year. The required return is 11 percent, and the tax rate is 30 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the NPV for each machine. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) NPV

Machine A

??$

Machine B

??$

EAC

Machine A

??$

Machine B

??$

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Question 1 Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $264,000, has a four-year life, and requires $81,000 in pretax annual operating costs. System B costs $372,000, has a six-year life, and requires $75,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 34 percent and the discount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) NPV

System A

??$

System B

??$

Question 2 Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $228,000, has a four-year life, and requires $72,000 in pretax annual operating costs. System B costs $324,000, has a six-year life, and requires $66,000 in pretax annual operating costs. Suppose LISC always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 35 percent and the discount rate is 10 percent. Calculate the EAC for both conveyor belt systems.(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16)) Find EAC

System A

??$

System B

??$

Question 3 Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,048,000 and will last for six years. Variable costs are 40 percent of sales, and fixed costs are $195,000 per year. Machine B costs $5,229,000 and will last for nine years. Variable costs for this machine are 35 percent of sales and fixed costs are $130,000 per year. The sales for each machine will be $10.1 million per year. The required return is 11 percent, and the tax rate is 30 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the NPV for each machine. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) NPV

Machine A

??$

Machine B

??$

EAC

Machine A

??$

Machine B

??$

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As both a short-term and a long-term creditor concerned about a customer’s ability to meet its obligations to you, which of the following combinations of ratios would you most likely prefer? Answer current ratio = 1.8; Times Interest Earned = 1.5; Total Debt Ratio = 0.45

current ratio = 1.5; Times Interest Earned = 0.5; Total Debt Ratio = 0.40

current ratio = 0.5; Times Interest Earned = 0.5; Total Debt Ratio = 0.35

current ratio = 1.0; Times Interest Earned = 1.0; Total Debt Ratio = 0.51

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The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. Assuming that this bond trades for $1112, then the YTM for this bond is closest to: a) 9.2% b) 3.4% c) 8.0% d) 6.8%

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Route Canal Shipping Company has the following schedule for aging of accounts receivable: Age of Receivable ( 1) ( 2 ) ( 3 ) ( 4 ) Month of Sales Age of Account Amounts % of amount due April 0-30 $195,360 March 31-60 $97,680 February 61-90 $122,100 January 91-120 $73,260 Total receivables $488,400 100% a. Calculate the percentage of amount due for each month b. If the firm had $1,584,000 in credit sales over the four-month period, compute the average collection period. Avg. daily sales should be based on a 120-day period. c. If the firm likes to see its bills collected in 42 days, should it be satisfied with the average collection period? d. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied? Please show your answer in a way that I can learn to solve it myself, thanks!

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Several rumors concerning Value Rite stock are causing the market price of the stock to be quite volatile. Given this situation, you decide to buy both a one-month European $25 put and a one-month European $25 call on this stock. The call price per share is $0.60 and the put price per share is $2.10. What will be your net profit or loss on these option positions if the stock price is $18 on the day the options expire? Ignore trading costs and taxes.

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sigma is thinking about purchasing a new clam digger for 14000. the expected net cash flows resulting from the digger are 9000 in year 1, 7000 in year 2, 5000 in year 3, and 3000 in year 4. what is the nov of the project and should sigma purchase this digger if its cost of capital is 12 percent?

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Kenneth gould is the general manager at a small town newspaper that is part of a national media chain. He is seeking approval from corporate headquarters to spend $20000 to buy some macintosh computers and a laser printer to use in desining the layout of his daily paper. This equipment will be depreciated using the straight line method over four years. These computers will replace outmoded equipment that will be kept on hand for emergency use.

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Progressive Home Health Care Inc. is a for-profit provider of home health care services in the Pacific Northwest. At present, it has EBIT of $2 million per year, no debt, and a market value of approximately $12 million. Although management is pleased with the good financial condition of Progressive, they are also concerned that the firm might be the target of a potential hostile takeover by a large competitor. Therefore, Progressive is considering issuing debt to buy back shares, the interest on which would be tax deductible (its tax rate is 40 percent). Management recognizes that as the amount of debt increases, both the value of the firm and the risk of financial distress increase. The CFO estimates that the present value of any future financial distress costs is $8 million, and that the probability of distress increases with the amount of debt in the following steps:

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Problem 4-3 Growth and financing [LO4] Galehouse Gas Stations, Inc., expects sales to increase from $1,730,000 to $1,930,000 next year. Mr. Galehouse believes that net assets (Assets ‘ Liabilities) will represent 65 percent of sales. His firm has a 10 percent return on sales and pays 30 percent of profits out as dividends.

(a)

What effect will this growth have on funds? (Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.)

The cash balance will change by $ .

(b)

If the dividend payout is only 10 percent, what effect will this growth have on funds? (Omit the “$” sign in your response.)

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A project will cost 160,000, in time zero, but will return a cash flow of 60,000 per year for the next five years. What is the project’s payback?

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Profit margin

=

4.37

Total asset turnover

=

2.80

Total debt ratio

=

0.37

Payout ratio

=

22

%

%

What is the sustainable growth rate for Perks, Inc.

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A project has an initial cost of $32,000 and a 3-year life. The company uses straight-line depreciation to a book value of zero over the life of the project. The projected net income from the project is $1,200, $2,300, and $1,800 a year for the next 3 years, respectively. What is the average accounting return?

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A project produces cash inflows of $8,300 a year for 4 years. The PI is 1.08 at a discount rate of 12.5 percent. What is the initial cost of the project? A. $23,099 B. $25,407 C. $27,109 D. $30,741

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A project has an initial cost of $15,000 and a 4-year life. The cash inflows are: year 1 = $5,000, year 2 = $7,200, year 3 = $2,800, and year 4 = $1,900. What is the value of the profitability index (PI) if the required return is 14 percent? A. .82 B. .86 C. .97 D. 1.03

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bella Restaurant On Main Street Food Menu Abstract (sales Mix) Date: July-sep. , 2010 Meal Period: Dinner entrees Menu item Name Number Menu item item item Menu Menu Menu Sold Mix % Food Selling CM Costs Revenues CM (MM) Cost Price Baked Ziti 125 3.85% $1.75 $8.39 $6.64 $218.75 $1,048,75 $830.00 Cheese Ravioli 378 11.65% $3.64 $7.99 $4.35 $1,375.92 $3,020.22 $1,644.30 Chicken Fett. Alfredo 280 8.63% $2.10 $9.99 $7.89 $588.00 $2,797.20 $2,209.20 Chicken Marsala 65 2.00% $2.25 $13.29 $11.04 $146.25 $ 863.85 $ 717.60 Chicken Parmigian 115 3.54% $1.98 $9.99 $8.01 $227.70 $1,148.85 $ 921.15 Eggplant Parmigian 198 6.10% $1.75 $7.99 $6.24 $346.50 $1,582.02 $ 1,235.52 Fettuccini Alfredo 286 8.81% $1.85 $6.99 $5.14 $529.10 $1,999.14 $1,470.04 Grilled Chicken w/garlic 156 4.81% $2.10 $8.29 $6.19 $327.60 $1,293.24 $ 965.64 Grilled Salmon 225 6.93% $1.10 $12.99 $11.89 $247.50 $2,922.75 $2,675.25 Lasagne 415 12.78% $2.30 $7.99 $5.69 $954.50 $3,315.85 $2,361.35 Manicotti 186 5.73% $1.95 $7.39 $5.44 $362.70 $1,374.54 $1,011.84 Seafood Fett.Alfredo 45 1.39% $3.20 $11.99 $8.79 $144.00 $ 539.55 $ 395.55 Seafood Ravioli 83 2.56% $3.35 $10.39 $7.04 $278.05 $ 862.37 $ 584.32 Shrimp Scampi 124 3.82% $3.10 $10.99 $7.89 $384.40 $1,362.76 $ 978.36 Spaghetti WIth Meatball 318 9.80% $2.10 $8.29 $6.19 $667.80 $2,636.22 $1,968.42 3-meat canneloni 81 2.50% $2.45 $8.99 $6.54 $198.45 $ 728.19 $ 529.74 Vegetarian Lasagne 166 5.11% $2.08 $8.99 $6.91 $ 345.28 $1,492.34 $ 1,147.06 1. Do there appear to be any abnormalities with the report? look for any items that seem unusual, such as item food cost. 2.Analyze the report. Which items have the highest contribution margin? Which items have the lowets contribution margin? 3.What advice can you provide to the restaurant manager for improving the restaurant’s sales mix?

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Why do you believe that venture capital funding increased as much as it did during the 90s? What would you attribute to these types of gains?

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The Taxi Co. is evaluating a project with the following cash flows: Year Cash Flow 0 -$13,400 1 6,100 2 6,800 3 6,500 4 5,400 5 -5,900 The company uses an 8 percent interest rate on all of its projects. What is the MIRR using the discounted approach?

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Tangshan Mining Corporation is considering issuing long-term debt. The debt would have a 30 year maturity and a 10 percent coupon rate. The firm would have to pay flotation costs of 10 percent of $1000 face value. The bond is currently selling at face value. The firm’s tax rate is 35 percent. Given this information, the after tax cost of debt for Tangshan Mining Corporation would be A. 7.26%. B. 11.17%. C. 10.00%. D. none of the above

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Technology Corp is considering a $200000 investment in a new marketing campaign which they anticipate will provide annual cash flows of $52000 for the next 5 yearss. The firm has a 10% cost of capital. What should the analysis indicate to the firm’s managers?

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1) Company XYZ Balance Sheet Assets Liabilities

Cash $10,000 Accounts Payable $17,000 Marketable Securities 20,000 Notes Payable 15,000 Accounts Receivable 35,000 Accrued Wages 10,000 Inventory 30,000 Bank Loan 45,000 Net Plant & Equipment $105,000 Total Liabilities $87,000 Owners Equity Common Stock $75,000 Retained Earnings 38,000 Total Owners Equity $113,000 Total Assets $200,000 Total Liabilities & Owners Equity $200,000 Sales during the year were $500,000. Net Income for the year was $40,000. Market Price per share is currently $30.00. Interest expense for the year was $5,000. Earnings before taxes were $60,000. Shares of Common Stock 10,000 Based on the above information calculate and interpret the following ratios: 1)Current Ratio 2)Quick Ratio 3)Days Sales Outstanding 4)Total Asset Turnover 5)Total Debt Ratio 6)Profit Margin 7)ROA 8)ROE 9)Fixed Asset Turnover 10) Price Earnings Ratio 11) Market to Book Value 12) Based on the ratio analysis you just conducted how good of financial shape do think this firm is in? Why? 13) When will a firms ROA and ROE be equal to one another?

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A. Meds has just finished evaluating several projects. Their cost of capital is 10%. NPV’s are calculated by the firm’s current cost of capital. Project Cost NPV IRR A $21,000 $5,000 12% B $ 3,000 $ -500 8% C $15,000 $2,000 19% D $14,000 $4,000 14% E $17,000 $4,000 17% If Meds has a Capital Budget limit of $40,000, and assuming the projects are of the same risk, which projects should they accept? Why? B. Meds now performs a risk assessment of the projects. They adjust for project risk by raising the calculated IRR by 3% for low risk projects, leaving the IRR the same for moderate risk projects, and lowering the calculated IRR by 3% for high risk projects. Risk ADJ Project Cost NPV IRR Level IRR A $21,000 $5,000 12% High 9% B $ 3,000 $ -500 8% Low 11% C $15,000 $2,000 19% High 16% D $14,000 $4,000 14% Mod. 14% E $17,000 $4,000 17% Low 20% Considering the risk assessment in Part C above, if Meds R Us has a Capital Budget limit of $40,000, which projects should they accept? Why?

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A $1,100 face value corporate bond with a 6.6 percent coupon (paid semiannually) has 11 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.3 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 8.6 percent. What will be the change in the bond%u2019s price in dollars and percentage terms?

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1) What is the approximate standard deviation of returns if over the past four years an investment returned 8.0%, -12.0%, -12% and 15.0%? 2) Plasti-tech Inc. is financed 60% with equity and 40% with debt. Currently, its WACC is 10% and free cash flows are estimated to be $100,000 next year and $200,000 the following year with 5% growth forever. If there are 10,000 common stock shares outstanding, what is Plasti-tech’s stock price per share? 3) What is the after-tax cost of preferred stock that sells for $10 per share and offers a $1.20 dividend when the tax rate is 35%? 4) What is the cost of preferred stock that pays a 12% dividend and sells at par if the firm’s tax rate is 35%? Hint: assume preferred stock price is $1,000 and dividend is $120.

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1) What is the approximate standard deviation of returns if over the past four years an investment returned 8.0%, -12.0%, -12% and 15.0%? 2) Plasti-tech Inc. is financed 60% with equity and 40% with debt. Currently, its WACC is 10% and free cash flows are estimated to be $100,000 next year and $200,000 the following year with 5% growth forever. If there are 10,000 common stock shares outstanding, what is Plasti-tech’s stock price per share? 3) What is the after-tax cost of preferred stock that sells for $10 per share and offers a $1.20 dividend when the tax rate is 35%? 4) What is the cost of preferred stock that pays a 12% dividend and sells at par if the firm’s tax rate is 35%? Hint: assume preferred stock price is $1,000 and dividend is $120.

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1. assume you are planning to invest $5000 each year for six years and will earn 10 percent per year. Determine the future value of this annuity due problem if your first $5000 is invested now. 2. Use a financial calculator to solve for the interest rate involved in the following future value of an annuity due problem. the future value is $57,000, the annual payment is $7500, and the time period is six years.

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1.)

A project that increased sales was accompanied by a $50,000 increase in inventory, a $20,000 increase in accounts receivable, and a $25,000 increase in accounts payable. Assuming these amounts remain constant, by how much has net working capital increased? 2) What is the amount of the operating cash flow for a firm with $500,000 profit before tax(EBIT), $100,000 depreciation expense, and a 35% marginal tax rate?

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Brewsters is considering a project that is equally as risky as the firms current operations. The firm has a cost of equity of 13.7 percent and a pre tax cost of debt of 8.4 percent. The debt equity ratio is .65 and the tax rate is 36 percent. What is the cost of capital for this project? A. 9.97 percent B. 10.42 percent C. 11.38 percent D. 11.62 percent

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If you were a business owner, what would you see as the costs and benefits to using VC funding as opposed to equity or debt issues? Relative to the previous methods that we have studied, why would VC funding be preferred over the other types?

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A bond%u2019s credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 5.7%. A-rated bonds sell at yields of 6%. Assume a 10-year bond with a coupon rate of 5.2% is downgraded by Moody%u2019s from Aa to A rating. a.

Calculate the initial price. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Initial price

b.

$

Calculate the new price. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

New price

$

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You buy a principal STRIP maturing in 5 years. The price quote per hundred of par for the strip is 80%. Using semiannual compounding what is the promised yield to maturity on the STRIP?

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“border: 0px; height: 0px; margin: 0px; padding: 0px; width: 707px”> “border: 0px; height: 0px; margin: 0px; padding: 0px; width: 707px”> “border: 0px; height: 0px; margin: 0px; padding: 0px; width: 707px”> Nodhead College needs a new computer. It can either buy it for $295,000 or lease it from Compulease. The lease terms require Nodhead to make six annual payments (prepaid) of $71,000. Nodhead pays no tax. Compulease pays tax at 35%. Compulease can depreciate the computer for tax purposes over five years ( “http://lectures.mhhe.com/connect/0073530743/Images/macrs.jpg”>MACRS ). The computer will have no residual value at the end of year 5. The interest rate is 6%. colspan=”2²>Required: (a) What is the NPV of the lease for Nodhead College? “color:rgb(255,0,0);”>( “color:rgb(255,0,0);”>Round your answer to the nearest dollar amount. “color:rgb(255,0,0);”>Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.) (b) What is the NPV for Compulease? “color:rgb(255,0,0);”>( “color:rgb(255,0,0);”>Round your answer to the nearest dollar amount. Omit the “$” sign in your response.) (c) What is the overall gain from leasing? “color:rgb(255,0,0);”>( “color:rgb(255,0,0);”>Round your answer to the nearest dollar amount. “color:rgb(255,0,0);”>Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.) Type your question here

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You own a bond portfolio worth and decide to hedge using futures on 10 year Treasury notes. The futures contract has a price of $125.8 and a multiplier of $1,000. You identify a bond for delivery and use it to calculate the hedge ratio. The Treasury bond has a modified duration of $6.3. If market rates rise by 38 basis points, by how much would the Treasury note futures be expected to change in value?

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“border: 0px; height: 0px; margin: 0px; padding: 0px; width: 707px”> Imagine yourself in the position of Thomas Pierce III, president of Greymare Bus Lines. Your firm was established by your grandfather, who was quick to capitalize on the growing demand for transportation between Widdicombe and nearby townships. The company has owned all its vehicles from the time the company was formed; you are now reconsidering that policy. Your operating manager wants to buy a new bus costing $95,000. The bus will last only eight years before going to the scrap yard. You are convinced that investment in the additional equipment is worthwhile. However, the representative of the bus manufacturer has pointed out that her firm would also be willing to lease the bus to you for eight annual payments of $16,400 each. Greymare would remain responsible for all maintenance, insurance, and operating expenses. Greymare no longer owns the bus, and so it cannot depreciate it. Therefore it gives up a valuable depreciation tax shield. We assume depreciation would be calculated using five-year tax depreciation ( “http://lectures.mhhe.com/connect/0073530743/Images/macrs.jpg”>MACRS ) schedules. GreymareAfA?A??cAf?cAc€A!A?¬Af?cAc€A3A??cs cost of capital is 8%, borrowing rate is 10% and the tax rate is 35%. Required: (a) What is the value of the lease if GreymareAfA?A??cAf?cAc€A!A?¬Af?cAc€A3A??cs marginal tax rate is 20%? (Round your answer to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.) (b) What would the lease value be if Greymare had to use five-year straight-line depreciation for tax purposes? (Round your answer to the nearest dollar amount. “color:rgb(255,0,0);”>Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.) rev: 05_31_2011Type your question here

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A borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 7.2% annual rate. After five years, he wishes to pay off the remaining balance. Interest rates have by then fallen to 7%. How much must he pay to retire the mortgage (to the nearest dollar)?

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To everyone who answered these previous questions: none matched the multiple choice :/ so here are a few at a time ( ill send 3 our at a time) with the mulitple choice.. Thanks alot guys! 1.River Rock inc. just paid and annual dividend of $2.80. The company has increase its dividend by 2.5 percent a year for the past ten years and expects to continue doing so.What will a share of this stock be worth six years fron now if the required return is 16 percent? $25.08 $24.65 $23.60 $26.90 $25.50 2. Suppose that in 2010 a $10 silver certificate from 1898 sold for $11,200. For this to have been true,what would the annual increase in the value of the certificate have been? 6.81 percent 7.49 percent 7.97 percent 7.23 percent 6.47 percent 3.The furniture showroom offers credit to its customers at a rate of 1.4 percent per month. What is the effective-annua rate of this credit offer? 16.80 percent 17.34 percent 16.52 percent 15.97 percent 18.16 percent

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An area of finance that involves the sale and marketing of securities, the analysis of securities and the mgnt of investment risks through portfolio

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What will be the approximate population of the United States, if its current population of 275 million grows at a compound rate of 2 percent annually for 25 years? I need the explanation

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what would be the approximate expected price of a stock when dividends are expected to grow at a 25% rate for 3 years, then grows at a constant rate of 7.5% if stock’s require return is 15% and next year’s dividend will be $2.00?

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‘Advocates of the “dividends are good” policy sometimes point to the fact that stocks with high yields tend to have above-average price-earnings (PE) ratios. Refute or support this statement by examining a sample of stocks, their dividend policies, and how they compare to their P/E ratios. Do you see any correlation between P/E and dividend payout? Is this evidence convincing enough to support the argument that the advocates make?

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Ajax Corp’s sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm’s times-interest-earned (TIE) ratio?

a. 5.51

b. 5.80

c. 4.72

d. 5.23

e. 4.97

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An annual payment bond with a $1,000 par has a 5% quoted coupon rate, a 6% promised ytm, and 6 years to maturity. What is the bond’s duration?

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You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for 60,000. The truck falls into the MACRS 3 year class, and it will be sold after three years for 14,000. Use of the truck will require an increase in NWC of 3,000. The truck will have no effect on revenues but it is accpected to save the firm 20,000 per year in before -tax operating cost. The firms marginal tax rate is 40%. What will the cash flows for this project be during year 3? Please HELP!

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Please answer the question. DO NOT send me a link to where to find the answer. 2) The 1999 Balance Sheet for ABC Corporation is shown below: Assets 1999 Liabilities 1999 Cash $10,000 Accounts Payable $ 8,000 Accounts Receivable 20,000 Accruals 2,000 Inventory 40,000 Total Current Liabilities $10,000 Total Current Assets $70,000 Bonds $30,000 Net Fixed Assets $150,000 Total Liabilities $40,000 Owners Equity Common Stock $100,000 Retained Earnings 80,000 Total Assets $220,000 Total Liab.& OE $220,000 The firm is currently operating at 100% capacity with sales of $100,000. Management believes that next year sales will increase by 10% and it is anticipating that the firms profit margin will remain at 20%. The dividend payout for next year will be 45%. In the year 2,000 what will the firms additional funds needed be? (In answering this question you must prepare a pro forma balance sheet.)

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According to the residual theory of dividends, if the firm’s equity need is less than the amount of retained earnings, the firm would Answer borrow to pay the cash dividend.

declare a dividend equal to the remaining balance.

pay no cash dividends.

not need to consider its dividend policy.

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An 8-year corporate bond has a 7% coupon rate. What should be the bond’s price if the required return is 6% and the bond pays interest semiannually?

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1.Keyser Materials has 8 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 102 percent of par. what is the current yield on keyser materials bonds? YTM? the effective annual yield? 7.84%, 7.92%,7.95% 7.84%,7.92%,7.97% 7.80%,7.84%,7.92% 7.80%,7.92%,7.95% 7.84%,7.80%,7.95%

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A $2 million jumbo CD is paying a quoted 3.55% interest rate on 180-day maturity CDs. How much money will you have at maturity if you invest in the CD?

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1. A style portfolio manager offers two things: A. investment skill and market timing B.the specific style combined with a low beta C. a high beta and investment timing D. investment skill combined with the style 2. Which of the following is true? A. mutual funds report returns before adjusting for taxes B. 12b-1 fees exceed a fund’s NAV C. small cup funds cannot have loads fees D. exchange-traded funds exchange their portfolios 3. Empirical studies of returns earned by investment companies indicate that: A. no funds outperform the market consistently B. most funds are less risky than the market C. most funds outperform the market consistently D. few fund outperform the market consistently 4. With a Roth IRA, the individual A. deducts the annual contributions B. earns tax-free income C. defers taxes D. avoids estate taxes 5. No load mutual funds may increase fees through 1. sales charges 2. commissions 3. 12b- 1 plans A. 1 and 2 B. 1 and 3 C. 2 and 3 D. only 3 6. Close-end investment companies 1. have a fixed capital structure 2. issue new stock whenever an individual buys shares 3. may sell for a premium over net asset value 4. must sell for their net asset value A. 1 and 3 B. 1 and 4 C. 2 and 3 D. 2 and 4 7. Which of the following is a consideration when selecting a mutual fund? 1. portfolio turnover 2. 12b- 1 fees 3. unrealized losses in the fund’s portfolio A. 1 and 2 B. 1 and 3 C. 2 and 3 D. all of these choices 8. Which of the following is a reason for selecting a mutual fund? A. its historic return B. high tax efficiency C. charging 12b-1 fees instead of load fees D. often realizing portfolio gains 9. Which of the following is not a consideration in real estate investment trusts (REITs)? A. fluctuations in dividend payments B. excessive use of debt financing by some REITs C. fluctuations interest rates affecting securities valuations D. the federal tax rate paid by the trust 10. Openend investment companies A. have a fixed number of taxes B. issue new stock whenever investors buy shares C. may sell for a discount from net asset value D. redeem shares at the investor’s cost 11. Mutual funds ____ realized capital gains and income (e.g. dividends received) A. retain B. reinvest C. distribute D. distribute and reinvest 12. Which of the following is excluded from and individual’s cash budget? A. wages and salary B. retirement account C. social security tax payments D. alimony 13. Use of P/E ratios will not produce superior investment results according to? A. the weak form of the efficient market hypothesis B. the semi-strong form of the efficient market hypothesis C. the strong form of the efficient market hypothesis D. all of the forms of the efficient market hypothesis 14. Possible investment objectives may include? 1. capacity to meet financial emergencies 2. preservation of capital 3. desire to finance retirement A. 1 and 2 B. 1 and 3 C. 2 and 3 D. all of these choices 15. Hedge funds follow investment strategies such as? A. acquiring shares in mutual funds B. shorting “overvalued” stocks while buying “undervalued” stocks C. limiting their portfolios to money market instruments D. underwriting new issues (IPOs) 16. Exchange-traded funds A. consistently outperform other funds B. mimic an index of securities C. require investors to select individual stocks D. are illustrations of load funds 17. Index funds tend to track? A. the stock market as a whole B. the bond market C. a specific measure of the market D. the return on other index funds 18. Which of the following is not an investment company? A. a money market mutual fund B. an index fund C. a commercial bank D. a growth mutual fund

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If you were the CFO of a firm, what ways could you employ to make the issuance of your company’s bonds more attractive in the market? In answering this question, research the current prices and bond yields of a few companies. Compare and contrast these yields with respect to what you perceive of the value of those companies.

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Consider the following two mutually exclusive projects Time Project A Project B 0 -400 -450 1 -350 140 2 -200 145 3 -87 130 4 700 130 5 700 135 6 950 135 What is each projects MIRR with a company required rate of return of 10%? Which project would be selected?

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A company is considereing the purchase of a computer costing $500,000 with an economic life of 5 years. the computer will be fully depreciated over 5 years using the straight line method. the market value of the computer will be $100,000 in five years. the computer will replace division employees whose salaries combined total is $120,000 per year. The computer will also immediately lower the firm’s required net working capital by $100,000. This amount of net working capital will be replaced once the computer is sold. The corporate tax rate is 34%. What is: Salvage value taxes? Aftertax salvage value? Cash flow outlay? OCF for the year? NPV adding back net working capital in year 5?

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Your company is considering the purchase of a new machine. The original cost of the old machine was $75,000; it’s 5 years old, and it has a current market value of $20,000. The old machine is being depreciated over a 10-year life toward a zero estimated salvagevalue on a straight-line basis, resulting in a current book value of $37,500 and an annual depreciation expense of $7,500. The old machine can be used for 6 more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new machine whose cost is $60,000 and whose estimated salvage is zero. Expected before-tax cash savings from the new machine are $10,000a year over its full MACRS depreciable life. Depreciation is computed using MACRS over a 5-year life, and the cost of capitial is 9 percent. Assume a 40 percent tax rate. What will the year 1 operating cash flow for this project be? The options for this multiple choice question are either A) 4,236 B)13,200 C)3,300 D)7,800 please show how you arrived at the correct answer. THANK YOU

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Company XYZ Balance Sheet (In Millions) Jan. 1 Dec. 31

Source Use ASSETS Cash $25 $20 _____ _____ Mkt. Sec. 30 22 _____ ______ Acct. Rec. 50 60 _____ _____ Inventory 120 150 _____ ____ Total Curr. Assets $225 $252 _____ _____ Gross Fixed Assets $155 $170 _____ ___ Less: Accum. Dep. (47) (55) _____ _____ Net Fixed Assets $108 $115 _____ _____ Total Assets $333 $367 LIABILITIES Accounts Payable $41 $35 _____ _____ Notes Payable 30 15 _____ ____ Other Liabilities 19 35 _____ _____ Long Term Debt 21 25 _____ ____ Total Liabilities $111 $110 OWNERS EQUITY Common Stock $83 $83 _____ _____ Retained Earnings 139 174 _____ _____ Total Equity $222 $257 Total Liab. & OE $333 $367 During the year XYZ purchased an additional $15million worth of fixed assets. The charge for depreciation in 2000 was $8 million. In addition, earnings after tax amounted to 70 million, and the company paid out 35 million in dividends. Based on the above information, prepare a 2000 statement of cash flows for XYZ. 2) The 1999 Balance Sheet for ABC Corporation is shown below: Assets 1999 Liabilities 1999 Cash $10,000 Accounts Payable $ 8,000 Accounts Receivable 20,000 Accruals 2,000 Inventory 40,000 Total Current Liabilities $10,000 Total Current Assets $70,000 Bonds $30,000 Net Fixed Assets $150,000 Total Liabilities $40,000 Owners Equity Common Stock $100,000 Retained Earnings 80,000 Total Assets $220,000 Total Liab.& OE $220,000 The firm is currently operating at 100% capacity with sales of $100,000. Management believes that next year sales will increase by 10% and it is anticipating that the firms profit margin will remain at 20%. The dividend payout for next year will be 45%. In the year 2,000 what will the firms additional funds needed be? (In answering this question you must prepare a pro forma balance sheet.)

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A company’s perpetual preferred stock currently sells for $92.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. What is the firm’s cost of preferred stock?

a. 8.65%

b. 9.56%

c. 9.10%

d. 7.81%

e. 8.22%

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What are the consequences of underpricing a new offering vs. overpricing it? Which side of the fence would you desire to err on? What criteria would you use to decide to go IPO as opposed to using VC funding, taking on new loans, or issuing debt (bonds)? What criteria would you use with your firm to determine which funding mechanism to use?

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Consider dividend policy, stock repurchases, and stock splits. Discuss how investors may react differently if their company issues dividends or announces a stock split or stock repurchase. Include examples to illustrate your point.

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Consider an investor who, on January 1, 2014, purchases a TIPS bond with an original principal of $113,000, an 8 percent annual (or 4 percent semiannual) coupon rate, and 10 years to maturity.

a.

If the semiannual inflation rate during the first six months is 0.4 percent, calculate the principal amount used to determine the first coupon payment and the first coupon payment (paid on June 30, 2014).(Round your answer to 2 decimal places. (e.g., 32.16))

Principal amount

b.

$

From your answer to part a, calculate the inflation-adjusted principal at the beginning of the second six months.

Inflation-adjusted principal

c.

$

Suppose that the semiannual inflation rate for the second six-month period is 1.2 percent. Calculate the inflation-adjusted principal at the end of the second six months (on December 31, 2014) and the coupon payment to the investor for the second six-month period. What is the inflation-adjusted principal on this coupon payment date? (Round your answers to 2 decimal places. (e.g., 32.16))

Inflation-adjusted principal at the end of the second six months

$

Coupon payment

$

Inflation-adjusted principal on this coupon payment date

$

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1. Consider the following zero-coupon yields on default free securities: 2345 5.50% 5.20% 5.00% 4.80% The forward rate for year 3 is closest to: A) 4.5% B) 5.0% C) 5.2% D) 4.6% 1. Von Bora Corporation (VBC) is expected to pay a $2.00 dividend at the end of this year. If you expect VBCAfA?A??1s dividend to grow by 5% per year forever and VBCAfA?A??1s equity cost of capital is 13%, then the value of a share of VBS stock is closest to: A) $25.00 B) $40.00 C) $15.40 D) $11.10 2. Von Bora Corporation is expected pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year. You expect Von BoraAfA?A??1s stock price to be $25.00 at the end of two years. Von BoraAfA?A??1s equity cost of capital is 10%. The price you would be willing to pay today for a share of Von Bora stock, if you plan to hold the stock for two years is closest to: A) $23.15 B) $20.65 C) $21.95 D) $21.90 3. Suppose that Texas Trucking (TT) has earnings per share of $3.45 and EBITDA of $45 million. TT also has 5 million shares outstanding and debt o $150 million (net of cash). You believe that Oklahoma Logistics and Transport (OLT) is comparable to TT in terms of its underlying business, but OLT has no debt. OLT has a P/E of 12.5 and an enterprise value to EBITDA multiple of 7. Based upon the price earnings multiple, the value of a share of Texas Trucking is closest to: A) $49.30 B) $43.10 C) $24.15 D) $27.60 Maturity (years)

1

Zero-Coupon YTM

5.80%

Dr.Zeng 3 1. Hamilton Company has 20-year, 8% quarterly coupon bonds that currently sell for $686.86. The company’s tax rate is 40%. What is the firm’s nominal component cost of debt? A) 3.05% B)7.32% C)7.36% D) 12.20% 2. Grateway Inc. has a WACC of 11.5%. Its target capital structure is 55% equity and 45% debt. The company has sufficient retained earnings to fund the equity portion of its capital budget. The before-tax cost of debt is 9%, and the company’s tax rate is 30%. If the expected dividend next period (D1) is $5 and the current stock price is $45, what is the company’s growth rate? A) 2.68% B) 3.44% C) 4.64% D) 6.75%.

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Consider two mutually exclusive R&D projects that company XYZ is considering. Assume the discount rate is 15% and the minimum acceptable IRR is 25 per cent. Year A B 0 -100,000 -200,000 1 50,000 60,000 2 50,000 60,000 3 40,000 60,000 4 30,000 100,000 5 20,000 200,000 SUM $90,000 $280,000 Calculate NPV, IRR, Incremental IRR, and PI for both projects.

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You are considering the following two manually exclusive projects. The crossover point is ____ and project ____ shoul dbe accepted at a 12 percent discount rate. Year Project A Project B 0 -$67,000 -$67,000 1 18,000 37,000 2 33,000 28,000 3 37,000 18,000 A. 11.07 percent; B B. 11. 38 percent; A C. 11.38 percent; B D. 14.02 percent; A E. 14.02 percent; B

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Charlie Company is expected to grow at an annual rate of 6% indefinitely. The return on similar stocks is currently 11%. Charlie’s board of directors declared a dividend of $1.85 yesterday. What should a share of Charlie Company sell for?

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Which of the following statements is CORRECT?

a. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.

b. Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.

c. The preferred stock of a given firm is generally less risky to investors than the same firm’s common stock.

d. Corporations cannot buy the preferred stocks of other corporations.

e. Preferred dividends are not generally cumulative.

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The common stock of Flavorful Teas has an expected return of 18.56 percent. The return on the market is 14 percent and the risk-free rate of return is 2.6 percent. What is the beta of this stock?

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How do changes in the income state statement and balance sheet data affect a statement of cash flows?

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1.You want yo buy a new sports coupe for $84,600 and the finanace offer at the dealership has quoted you 7.1 percent APR loan for 48 months to buy the car. What will your monthly payments be? What is the effective annual rate on this loan? 2.River Rock Inc. just paid an annual dividend of $2.80. the company has increase its dividend by 2.5 percent a year for the past ten years and expects to continue doing so.What will a share of this stock be worth six years from now if the required return is 16%? 3.Eastern Shore Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $10,000 per year forever.If the required return on this investment is 5.5 percent how much will you pay for the policy? 4.Suppose that in 2010, a $10 silver certificate from 1898 sold for $11,200. For this to have been true, what would the annual increase in value on the certificate have been? 5.The furniture showroom offers credit to its customers at a rate of 1.4 percent per month. What is the effective annual rate of this credit offer? 6.The Green House has a profit margin of 5.6 percent on sales of $311,200. The firm currently has 15,000 shares of stock at a market price of $11.60 per share. what is the price-earnings ratio? 7. Keyser Materials has 8 percent coupon bonds on the market with 19 years to maturity. The bonds makre semiannual payments and currently sell for 102 percent of par. What is the current yield on Keysey Materials bonds? The YTM? the effective annual yield? 8.Andre’s Dog House had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. The depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital?

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A $1000 par value convertible bond has a conversion price of $50. It is currently selling for $1,120 despite the fact that the bond%u2019s coupon rate and the market rate are equal. The common stock obtained upon conversion is selling for $54 per share. What is the convertible bond%u2019s conversion premium?

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13-1 The initial proceeds per bond, the size of the issue, the initial maturity of the bond, and the years remaining to maturity are shown in the following table for a number of bonds. In each case, the firm is in the 40 percent tax bracket, and the bond has a $1,000 par value. Bond Proceeds per Size of Initial Maturity Years Remaining Bond Issue of Bond to Maturity A $985 10,000 bonds 20 Years 15 years B 1,025 20,000, 25, 16 C 1,000 22,500, 12, 9 D 960 5,000, 25, 15 E 1,035 10,000, 30, 16 A. Indicate whether each bond was sold at a discount, at a premium, or at its par value. B. Determine the total discount or premium for each issue. C. Determine the annual amount of discount or premium amortized for each bond. D. Calculate the unamortized discount or premium for each bond. E. Determine the after-tax cash flow from the unamortized discount associated with the retirement now of each of these bonds, using the values developed in part (d).

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Calculate the required rate of return for Climax Inc., assuming that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 5.0%, (4) the firm has a beta of 1.00, and (5) its realized rate of return has averaged 15.0% over the last 5 years.

a. 10.29%

b. 12.60%

c. 12.00%

d. 10.83%

e. 11.40%

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If capital markets are truly efficient, then the by Solid Savings” href=”http://site.Transtutors.com/s/_widget/tiny_mce/#”>sale or purchase of any by Solid Savings” href=”http://site.Transtutors.com/s/_widget/tiny_mce/#”>security at the prevailing market price is generally a zero-NPV transaction. by Solid Savings” href=”http://site.Transtutors.com/s/_widget/tiny_mce/#”> Are you familiar with any transactions that do not follow this principle? If so, what are/were they?

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If capital markets are truly efficient, then the sale or purchase of any by Solid Savings” href=”http://site.Transtutors.com/s/_widget/tiny_mce/#”>security at the prevailing market price is generally a zero-NPV transaction. by Solid Savings” href=”http://site.Transtutors.com/s/_widget/tiny_mce/#”> Are you familiar with any transactions that do not follow this principle? If so, what are/were they? by Solid Savings” href=”http://site.Transtutors.com/s/_widget/tiny_mce/#”> Please share with the by Solid Savings” href=”http://site.Transtutors.com/s/_widget/tiny_mce/#”>class what they are/were and why you think that they didn’t follow this principlee your question hereType your question here

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If capital markets are truly efficient, then the sale or purchase of any security at the prevailing market price is generally a zero-NPV transaction. Are you familiar with any transactions that do not follow this principle? If so, what are/were they? Please share with the class what they are/were and why you think that they didn’t follow this principlee your question here

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Carter’s preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return?

a. 8.24%

b. 8.03%

c. 8.89%

d. 8.45%

e. 8.67%

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How much cashflow is needed before tax and interest to satisfy debt holders and equity holders if tax rate is 40%, there is $10 million in Common stock requiring a 12% return and $6 million in bonds requiring an 8% return? (show work please)

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Penn Corporation does not currently pay dividends. It is expected to begin paying dividends in year two (D1) with a $2.50 dividend. This dividen is expected to grow at a rate of 14% for three years and then 6% every year after that forever. The required return on penn’ stock is 16%. Caluclate the price of Penn’s stock today.

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A perpetuity pays $100 per year and interest rates are 6.5%. how much would its value change if interest rates increased to 9%. (a) $250.00 increase (b) $250.00 decrese (c) $427.35 increase (d) $427.35 decrease

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Phillips Equipment has 80,000 bonds outstanding with a par value of $1000 each and a quoted price of 103. The bonds carry a 7.75% coupon that is payable semiannually and mature in 25 years. The company also has 75,000 shares of 7 percent preferred stock and 2.5 million shares of common stock outstanding. The preferred stock sells for $65 a share. The common stock has a beta of 1.34 and sells for $42 a share. The U.S. Treasury bill is yielding a 2.8 percent and the return on the market is 11.2 percent. The corporate tax rate is 38%. What is the firms weighted average cost of capital?

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If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.

a. true b. false

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what is the NPV of a project that costs $100,000, provides $23,000 in cash flows annually for 6 years, requires a $5,000 increase in net working capital, and depreciates the asset straight line over 6 years while ignoring half year convention? Discount rate is 14%

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you have noticed that last year,private equity gourps were buying public companies at big premium ,what is the implication of this in term of changes in investor risk aversion, if any? what is happening to the size of risk premium paid by investors?

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Nugent, Inc, has a gross profit margin of 25.49 percent on sales of $7,42,976 and total assets of $6,872,416. The company has a current ratio of 2.69 times, accounts receivable of $1,438,163 cash and marketable securities of $197,562, and current liabilities of $831,240. What’s Nugent’s level of current assets? How much inventory does the firm have? what is the inventory turnover ratio? What is Nugent’s day’s sales outstanding? If management wants to set a target DSO of 30 days, what should Nugent’s accounts receivable be?

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Explain what Modigliani and Miller is? Explain what Pecking Order Therory is? Explain how “Modigliani and Miller” and Pecking Order Theory differs from each other. Discuss why it is important for managers or leaders to optimize their capital structure. Please answer all questions to obtain all the points. Your answer address the questions

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Explain how changes in debt-equity ratio impact the beta of the firm’s equity. Provide a mathematical example to support your analysis.

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Fast Eddies Photo Shop advertises a new home entertainment center for $10,000 cash or $3500 a year for 4 years? What rate is Fast Eddie charging?

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A factory costs $450,000. You forecast that it will produce cash inflows of $145,000 in year 1, $205,000 in year 2, and $350,000 in year 3. The discount rate is 10%. a.

Calculate the PV of cash inflows. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Present value

$

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I will appreciate if you separate the answers to these questions 1. Given the discussion in this module, why do you think that managers of the largest corporations think about capital structure so much? 2. What are the ramifications of a firm having a “less than optimal” or “wrong” capital structure?

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I have two questions 1. Which of the following securities is likely to be the most liquid according to this date? Explain. Stock Bid Ask R $39.43 $39.55 S $13.67 $13.77 T $116.02 $116.25 question 2 Tim portfolio contains two stocks, Lightco and Shineco. Last year his portfolio returned 14 percent. Lightco’s return was 5 percent and Shineco returned 20 percent. What are the weights of each in Tim’s portfolio? The following year Tim adds a third stock, Brightco, and reallocates his funds amonth the three stocks. Lightco and Shineco have the same weight in the portfolio, and Brightco’s weight is one-half of Lightco. During the year Lightco returns 10 percent, Shineco returns 12 percent, and Brightco loses 5 percent. What was the return on his portfolio?

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Identify some political and currency risks of Japan and discuss why a U.S. company would invest in that country. Also discuss some of the various international finance topics such as the foreign exchange market, purchasing power parity, interest rate parity, cross rates, and so on. Why is it important for international firms to understand these concepts?

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For instance, for a 6 year bond you recover in present value terms 6% of the investment in year one, 4% in year two, 8% in year three, 3% in year four, 5% in year 5 and remainder in the last year. What is the duration of this bond?

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‘On the Internet, research how tax changes in 2002-2003 affected the propensity of firms to change their dividend policy. What were the tax changes? Can you find any examples of firms that changed their policies? What do you think the impact of these changes will be upon the marketplace and for that firm, specifically?

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There is an inverse relationship between bonds’ quality ratings and their required rates of return. Thus, the required return is lowest for AAA-rated bonds, and required returns increase as the ratings get lower.

a. true b. false

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The Fed changes reserve requirements from 10% to 7%, thereby creating $900 million in excess reserves. The total change in deposits (with no drains) would be

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Finance For Managers. Briefly describe and then determine the approximate percentage appreciation or depreciation of the NASDAQ Composite, Dow Jones Industrial Average, and the S&P 500 for the last 12 months and for year-to-date and provide these figures. Clearly note if the change represents appreciation or depreciation percentage change for the time periods Describe the trend of interest rates over the last 3 years. This may require online research Give your best educated estimate of where interests rates are headed over the next year and justify your answer. There is no right or wrong answer to this estimate, but I will carefully review the justification or you prediction Because so many loan products are based upon the Prime Interest Rate, describe it and provide the current Prime Interest Rate

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The Fed changes reserve requirements from 10% to 14%, thereby eliminating $750 million in excess reserves. The total change in deposits (with no drains) would be (rounded)

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Finance overall class: how has your ability to perform these skills and apply this knowledge evolved?;What concepts, skills, or insights were most relevant to you?; &How have you grown in your academic and professional goals? Have you made progress on any items in your tasks plan that you developed during first course?

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Find the present value of $5,100 when 4.3 percent compounded daily for four years.

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Portfolio Management using Betas and Algebra. Suppose you are an investment advisor for a client holding a diversified stock portfolio consisting of a $5,000 investment in each of 20 different large-cap stocks. The portfolio beta is 1.15. Your client decides to sell a retail stock with a beta of 1.0 for net proceeds of $5,000 and use all the proceeds to buy a technology stock with a beta of 2.0. Your client asks you to advise the beta of the new portfolio

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find the present value of 5,100 under each of the following rates and periods 6.6 percent compounded quarterly for eight years

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what is the Present value of the following set of cash flows at an interest rate of 10%; $1,000 today, $1,000 at the end of year on, $1,000 at the end of year three, and $-1,000 at end of year Five?

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What is the present value of a payment of $25 every 6 months for perpetuity, if the appropriate discount rate is 2% per year?

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Morgantown Movers has net working capital of $11,300, current assets of $31,200, equity of $53,400, and long-term debt of $11,600. What is the amount of the net fixed assets?

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You need some money today and the only friend you have that has any is your miserly friend. He agrees to loan you the money you need, if you make payments of $30 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 2 percent interest per month. How much money are you borrowing?

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You are negotiating to make a 7-year loan of $25,000 to Breck Inc. To repay you, Breck will pay $2,500 at the end of Year 1, $5,000 at the end of Year 2, and $7,500 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of each year from Year 4 through Year 7. Breck is essentially riskless, so you are confident the payments will be made. You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year loan. What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X?

a. $4,271.67

b. $4,496.49

c. $4,733.15

d. $5,218.30

e. $4,969.81

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Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project’s discounted payback? WACC:10.00%Year01234Cash flows-$1,375$525$485$445$405

a. 3.59 years

b. 4.31 years

c. 3.73 years

d. 3.70 years

e. 3.98 years

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Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project’s discounted payback? WACC: 10.00% Year: 0 1 2 3 4 Cash Flow -700 525 485 445 405 Answers: 1.57 1.56 1.48 1.38 1.54 Datta Computer Systems is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s projected IRR can be less than the WACC (and even negative), in which case it will be rejected. Year: 0 1 2 3 Cash Flow: -975 450 470 490 Answes: 17.55% 21.67 15.69 16.72 20.64

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Nachman Industries just paid a dividend of D 0 = $1.32. Analysts expect the company’s dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value?

a. $42.65

b. $43.75

c. $41.59

d. $45.99

e. $44.87

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What is the maximum dividend payout ratio consistent with not requiring external funds for a firm with an ROE of 15% a debt-equity ratio of 25% and annual sales growth objective of 10%? (show work)

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you must be a member of a(n)__ in order to borrow money there credit union S&L none of the above

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A municipal bond you are considering as an investment currently pays a 6.80 percent annual rate of return. a.

Calculate the tax equivalent rate of return if your marginal tax rate is 28 percent. b.

Calculate the tax equivalent rate of return if your marginal tax rate is 21 percent.

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What is the minimum cash flow that could be received at the end of year 3 to make the following project acceptable? with an Intial cost of $100,000 cash flows at end of years 1 and 2 = $35,000; opprtunity cost of capital =10%

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A major corporation is considering a capital budgeting project that involves the developement of a new technology. The controller estimates the net present value to be negative, yet argues the company should invest in the project. Which of the following statements is most correct? a) Capital rationing may exist for one year b) The controller should be fired for making such a poor decsion c) The profitability index may be greater then one, giving an accept decision d) The controller may be considering the option to expand or modify the project in the future

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when managers decide on a dividend, one of their concerns should be to give shareholders a “fair” level of dividends. If you were the owner of a company and were going to pay a dividend, how would you decide what “fair” means to your shareholders? Explain how you would consider setting a policy on dividends for your company.

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the main firm is a zero growth firm with an expected EBIT of $100,000 and a corporate tax rate of 30%. Main uses $500000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. What is Main’s cost of equit?

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On July 1, 2012 you purchase a $10,000 par T-Note that matures in 5 years. The coupon rate is 8% and the price quote is 98:6. The last coupon payment was May 1, 2012 and the next payment is November 1, 2012 (184 days total). The accrued interest is

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Kate is the CFO of a major firm and has the job of assinging discount rates to each project that is under construction. Kate’s method of doing this is to assign an incrementally higher rate as the risk level of the project increases over that of the current firm. Likewise, she assigns lower rates as the risk level declines. Which one of the following approaches is Kate using to assign the discount rates? A. Pure play approach B. Divisional rating C. Subjective approach D. Straight WACC approach

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You invested $1,400 in an account that pays 5 percent simple interest. How much more could you have earned over a 20-year period if the interest had compounded annually?

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An investor is in the 28% federal tax bracket, pays a 9% state tax rate and 4% in local income taxes. For this investor a municipal bond paying 6% interest is equivalent to a corporate bond paying _____ interest.

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An investor must choose between two bonds: Bond A pays $100 annual interest and has a market value of $850. It has 12 years to maturity. Bond B pays $106 annual interest and has a market value of $920. It has 4 years to maturity. Assume the par value of the bonds is $1,000 a. compute the current yield on both bonds (%) Bond A Bond B b. Which bond should he select based on your answer to part a? c. A drawback of current yield is that it does not consider the total life of the bond. For example, he approximate yield to maturity on Bond A is 12.36%. What is the approximate yield to maturity on Bond B? (%) d. Has your answer changed between parts b and c of this question in terms of which bond to select? (yes or no)

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an investor buys a 10 year, 5% coupon bond for $1,125 holds it for 2 years and then sells it for $1,075. What was the investors rate of return (show work)

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The risk that interest rates will decline, and that decline will lead to a decline in the income provided by a bond portfolio as interest and maturity payments are reinvested, is called “reinvestment rate risk.”

a. true b. false

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Robert paid $1,000 for a 10-year bond with a coupon rate equal to 8 percent when it was issued on January 2. If Robert sold the bond at the end of the year in which it was issued for a market price of $925, What return would he earn? What portion of this return represents capital gains, and what portion represents the current yield?

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Ronnie’s Custom Cars purchased some fixed assets two years ago for $100,000. The assets are classified as 5-year property for MACRS. Ronnie is considering selling these assets now so he can buy some newer fixed assets which utilize the latest in technology. Ronnie has been offered $52,000 for his old assets. What is the net cash flow from the salvage value if the tax rate is 34 percent? MACRS 5-year property Year

Rate

1

20.00%

2

32.00%

3

19.20%

4

11.52%

5

11.52%

6

5.76%

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you are schedules to recieve $7,500 in three years.When you recieve it you will invest it for eight more years at 7.5 percent per year. . How much will you have in 11 years

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Find the IRR of a project that returns $17,000 three years from now if it costs $12,000.

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A life insurance company purchases $1 billion of corporate bonds from premiums collected on its life insurance policies. Therefore, A) The corporate bonds are direct securitiesand the life insurance policies are direct securities. B) The corporate bonds are direct securities and the life insurance policies are indirect securities. C) The corporate bonds are indirect securities and the life insurance policies are indirect securities. D) The corporate bonds are indirect securities and the life insurance policies are direct securities.

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A loan is offered with monthly payments and a 10% APR. What’s the loan’s effective annual rate (EaR) (a) 10.00% (b) 10.47% (c) 11.20% (d) 12.67%

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The Sanders Electric Company is evaluating 2 projects for possible inclusion in the firm’s capital budget. Project M will require a $37,000 investment while project O”s investment will be $46,000. After-tax cash inflows are estimated follows for the 2 projects: year project M project O 1 $12,000 $10,000 2 $12,000 $10,000 3 $12,000 $15,000 4 $12,000 $15,000 5 $15,000 a. Determine the payback period for each project. b. Calculate the NPV & profitability index for each project based on a 10% cost of capital. Which, if either, of the projects is acceptable? c. Determine the IRR & MIRR for projects M & O.

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The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $238,000 and cash expenses by $184,000. The initial investment will require $96,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The company has a marginal tax rate of 32 percent. What is the annual value of the depreciation tax shield?

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If Jim has $10,000, and can save that money at some interest rate compounded semi-annually for the next 5 years, and at the end of that time will have $13,439.16, what annual rate of interest did he earn?

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Jim has $2,000 and can earn 2.5% annual interest on this money for the next 5 years. If he does so how much will he have at the end of that time?

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if Jim expects to get $10,000 at the end of 5 years, and figures he should discount that amount by 2.5% per year, how much would it be worth to him today?

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If Jim expects to get $15,000 at the end of 4 years, and he discounts that by 4.0% compounded quarterly, how much is it worth today?

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If Jim intends to save $20,000 for a new car over the next 60 months; he can save $315 per month, earning interest monthly on his savings. What annual rate did he earn?

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If Jim must pay 18.0% interest compunded monthly on a loan, what is his effective annual interest rate?

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Jim goes in to buy furniture and the salesmen tells him he will only have to pay $127.89 per month for 30 months, what annual interest rate will Jim be paying if the cash price was $3,000.00? (Interest is compunded monthly on the unpaid balance).

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Jim goes to buy furniture and salesperson says he will pay $127.89 per month for 30 months, what annual rate of interest will Jim be paying if the cash price was $3,000? (interest computed monthly on unpaid balance)

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If Jim’s father tells him he will give him $5,000 per year for the next 4 years begginning at the end of this year, and Jim figures he can earn 3.0% interest compounded annually on this money, how much will he have at the end of that time?

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Jim is saving for a car and has $2,000 now. if he puts this money into a savings account earning 4.0% simple annual interest, how much will he have at the end of 5 years?

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If Jim has $1,000 to invest today, and can put an additional $1,000.00 into this investment at the end of each year for 4 years and can earn 3.0% interest on both the lump sum and his annuity,how much will he have at the end of 4 years?

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Jinhee Ju, 27, just received a promotion at work that increased her annual salary to $37,000. She is eligible to participate in her employers 401(k) plan to which the employer matches dollar-for-dollar workers contributions up to 5 percent of salary. However, Jinhee wants to buy a new $25,000 car in three years and she wants to save enough money to make a $7,000 down payment on the car and finance the balance. Also in her plans is a wedding. Jinhee and her boyfriend, Paul, have set a wedding date two years in the future, after he finishes medical school. Paul will have $100,000 of student loans to repay after graduation. But both Jinhee and Paul want to buy a home of their own as soon as possible. This might be possible because at age 30, Jinhee will be eligible to access a $50,000 trust fund left to her as an inheritance by her late grandfather. Her trust fund is invested in 7 percent government bonds. 1. Justify Jinhee’s participation in her employer’s 401(k) plan using the time value of money concept. 2. Calculate the amount that Jinhee needs to save each year for the down payment on a new car, assuming monthly compounding. For each scenario, how much of her down payment will come from interest earned? 3. What will be the value of Jinhee’s trust fund at age 60, assuming she takes possession of half of the money at age 30 for a house down payment, and leaves the other half of the money untouched where it currently invested? 4. What is Paul’s annual payment if he wants to repay hi student loans completely within 10 years and he pays a 5 percent interest rate? How much more or less would Paul pay if the loans compounded interest on a monthly basis and Paul also paid the loans on a monthly basis? 5. List at least three actions that Jinhee and Paul would take to make the time value of money work in their favor.

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If Jim can save $100 per month, at 2.5% interest compounded continuously, how much will he have at the end of 4.5 years?

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what return should be expected from investing in the market profolio that is expected to yield 20% if the investment includes all of the investors funds plus 40% of additional funds borrowed at risk-free rate of 5%?

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A project costs $101,000 and is expected to generate cash flows of $31,000 per year for the next 15 years. At what rate is the NPV equal to zero? This is a multiple choice quesion. A)30.10% B) 29.83% C)22.47% D)31.38% Please show how you arrived at the answer, for full credit. Thank you!

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Find two publicly traded companies of your choosing. Look on the Internet for their financial information to see who the majority shareholders are for the corporation. Are they individual shareholders? Are they institutional shareholders (like mutual funds or pension fund organizations)? What are the implications of each type of majority shareholder with respect to the decision making that goes on at the firm?

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You purchase a $1000 face value convertible bond for $975. The bond can be converted into 150 shares of stock. The stock is currently priced at $5.25. At what minimum stock price would you be willing to convert?

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You purchase a $255,000 house and you pay 20% down. You obtain a fixed-rate mortgage where the annual interest rate is 5.85% and there are 360 monthly payments. What is the monthly payment?

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Name three publicly held companies on the Internet to determine their dividend policy. Choose companies from different markets (e.g., manufacturing, information technology, and the service sector). Compare and contrast their policies on how much and how frequently they pay. Have they changed their policies in the recent past? Can you tell from their financial statements how their dividends have varied over the past few years?

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the purpose of the debt service ratio is to show the amount of your income needed to pay your__. current liabilities monthly loan payments none of the above

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You can purchase a T-bill that is 91 days from maturity for $10,965. The T-bill has a face value of $11,000. Calculate the T-bill%u2019s quoted yield. (Use 360 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

a.

b.

Calculate the T-bill%u2019s bond equivalent yield. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

c.

Calculate the T-bill%u2019s EAR. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

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You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: Inflation premium = 3.5% Liquidity premium = 0.5% Maturity risk premium = 1.55% Default risk premium = 2.3% On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.

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Today, you want to sell a $1,000 face value zero coupon bond you currently own. The bond matures in 4.5 years. How much will you receive for your bond if the market yield to maturity is currently 5.33 percent? Ignore any accrued interest.

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A T-Bond with a $1000 par is quoted at 97:14 Bid, 97:15 Ask. The ask price for you to buy this bond is

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Should Tangshan Mining company accept a new project if its maximum payback is 3.25 years and its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $700,000 in year 3 and $1,800,000 in year 4?

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Suppose the Robinson company had cost of goods sold of 1,000,000 in 2010 and 1,200,000 in 2011 Calculate inventory turnover for each year

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Taggart Technologies is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate Taggart pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue?

a. The ROA will decline.

b. Taxable income will decline.

c. The tax bill will increase.

d. Net income will decrease.

e. The times-interest-earned ratio will decrease.

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7. All other things being equal, a policy of financing assets with a relatively ______ proportion of long-term debt will tend to ______ the variability (or risk) of the after-tax earnings of the firm. a. large, decrease b. small, decrease c. large, increase

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You have a $926 balance on your credit card account. The minimum payment on your account is 2 percent of the latest balance or $20, whichever is greater. What will be the minimum payment this month? ( Please show all work)

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The accrued liabilities of a firm are: Answer retained earnings from past years

reflect the prepayment of certain expenses

owners%u2019 equity in the firm

amounts owed but not yet due

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A bank has an average asset duration of 2.25 years, the average duration of the liabilities is 1.25 years, and the bank has total assets of $2 billion and $200 million in equity. The bank has an ROE of 9.00%. If all interest rates decrease 50 basis points, the predicted change in the bank’s market value of equity is ___________. -2.85% -3.55% 3.55% 2.85% 5.16%

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A bank has D A = 2.4 years and D L= 0.9 years. The bank has total equity of $82 million and total assets of $850 million. Interest rates are at 6%. What is the bank’s duration gap in years? 1.5325 1.5868 1.2685 1.4563 1.6222

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A bank has D A = 4 years and D L = 3 years. The bank has total equity of $150 million and total assets of $375 million. Interest rates are at 7%. If interest rates increased by 2% then the predicted dollar change in equity value will be? $15,420,561

-$15,420,561

$18,950,126.45

-$18,950,126.45

None of the above.

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A bank has D A = 4 years and D L = 3 years. The bank has total equity of $150 million and total assets of $375 million. Interest rates are at 7%. If interest rates fell by 3% then the predicted % change in equity value will be? -10.56%

-13.50%

17.86%

15.42%

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If a bank invested $61 million in a two-year asset paying 13 percent interest per year and simultaneously issued a $61 million one-year liability paying 11 percent interest per year, what would be the impact on the banks net interest income if, at the end of the first year, all interest rates increased by 1 percentage point?

Net interest income will (Click to select) increase decrease by million.

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Calculate the average collection period for Dotte Inc. if its accounts receivables were $500 and $600 at the end of each of the last two years, and its revenue over the last year was $3,000: 60 days

61 days

67 days

73 days

What is the “Current Yield” of a bond with a 5% annual coupon, 5 years until maturity, $1,000 face value, and a price of $500? 1.0%

5.0%

10.0%

22.7%

An initial public offering (IPO) would be sold in the ________ market. primary

secondary

tertiary

after

What is the payback period of the following cash flows: Year 0: -10, Year 1: 12, Year 2: 3, and Year 3: 2? ? 0 years

1 years

2 years

3 years

After analyzing two mutually exclusive projects, you find project A has an IRR=16% and a NPV=$600, while project B has an IRR=19% and a NPV=$560. Based on this information you should choose project A. True False RRR Inc. has $1,000,000 in debt. Using free cash flows and WACC and a estimated growth rate, you calculate the total value of the firm to be $2,000,000. If there are 100,000 common stock shares outstanding, what is RRR’s estimated stock price per share? 10

20

40

100

What is the price of a common stock paying $3.50 in annual dividends next year and then are expected to grow at 2% per year forever. Assume a discount rate of 12%? 19

28

29

35

What is the yield to maturity for a bond paying a 5% annual coupon, 1 year until maturity and sells for $800? Assume par = $1,000. 30.50%

31.25%

33.56%

None of the above.

For a company that has $1,000 in taxable income and the tax rates are as follows: For taxable income up to $800 – tax rate = 20% For income above $800 – tax rate = 40% What are the firm’s average and marginal tax rates? 24% and 40%

20% and 20%

20% and 40%

40% and 40%

What is the NPV of a project with the following cash flows and a 10% discount rate: Year 0: -10, Year 1: 12, Year 2: 3, and Year 3: 2? 4.6

4.9

5.1

None of the above What is the yield to maturity for a bond with a 10% annual coupon that has six years until maturity and sells for $900? Assume par = $1,000. 6.0%

8.5%

10.0%

12.5%

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Calculate the bond equivalent yield on a Fed Funds loan that is 70 days from maturity. The borrower will get $8,000 and pay back $8,250 at maturity.

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Calculate the expected return on the following portfolio, consisting of Stocks A, B & C: Stock A: Investment of $1,000; 10% Expected Return Stock B: Investment of $4,000; 8% Expected Return Stock C: Investment of $5,000; 6% Expected Return

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A bond is currently selling for $945.50. It is a semi-annual coupon bond (bond gives coupon payment every 182 days) with an annual coupon rate of 6% and a par value of $1,000. The next coupon payment is 150 days away. That means existing owner has this bond for 32 days so far. If you purchase this bond today from the existing owner then what would be the dirty price of this bond?

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Book value of common stockholders%u2019 equity of Dow Chemical, December 31, 2010 (figures in billions).

Common shares ($2.6 par value per share)

$

2.936

Additional paid-in capital

2.291

Retained earnings

17.741

Treasury shares at cost

(0.244

)

Other

(4.880

)

Net common equity

a.

$

17.844

Suppose that Dow Chemical issues 150 million shares at $24 share. Show the company%u2019s equity after the issue. (Negative amounts should be indicated by a minus sign. Enter your answers in billions rounded to 3 decimal places.)

Common shares

$

Additional paid-in capital Retained earnings Treasury shares at cost Other

Net common equity

b.

$

Suppose that Dow subsequently repurchased 75 million shares at $40 a share. Rework part (a) to show the effect of the further change. (Negative amounts should be indicated by a minus sign. Enter your answers in billions rounded to 3 decimal places.)

Common shares

$

Additional paid-in capital Retained earnings Treasury shares at cost Other

Net common equity

$

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Assets ($ Mill)

Liabilities & Equity

Investments under 1 year

$ 450

Deposits

$ 2,000

Loans

$ 750

Short Term Liabilities

$ 300

Variable rate loans

$ 800

Long Term Liabilities

$ 600

Equity

$ 300

Total

$3,200

(rate reset in 6 months)

Fixed Rate Assets > 1 year maturity

$ 1,200

Total

$3,200

Use above given information, what is the cumulative rate sensitive gap? -$300

-$1,100

$0

None of the above.

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Assets ($ Mill)

Liabilities & Equity

Investments under 1 year

$ 450

Deposits

$ 2,000

Loans

$ 750

Short Term Liabilities

$ 300

Variable rate loans

$ 800

Long Term Liabilities

$ 600

Equity

$ 300

TL + TE

$3,200

(rate reset in 6 months)

Fixed Rate Assets > 1 year maturity

$ 1,200

Total

$3,200

Use above given information to answer the following question: What will happen to NII if the average return on RSAs is 7.5% and the average cost of RSLs is 6% and interest rate is expected to increase by 1%? increase by $3 million

decrease by $3 million

increase by $2.5 million

None of the above.

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Assume that a $1,00,000 par value, semiannual coupon U.S. Treasury note with five years to maturity (YTM) has a coupon rate of 5%. The yield to maturity of the bond is 11.00%. Using ths information and ignoring the other costs involved, the value of the T-note is calculated as $773,871.23 Based on this calculation and an understanding of semiannual coupon bonds, complete the following statements: 1. Assuming the interest rates remain constant, the T-notes price is expected to _____________. (Increase or Decrease) Please Explain Why. 2. The T-note described is selling at a ________________. (Premium or Discount) Please Explain Why. 3. When valuing a semiannual coupon bond, the time period N in the present value formula used to calculate the price of the bond is treated in terms of ____________ periods. (Annual, 6 month, 4 month, 12 month)

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As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow? Sales revenues $13,000 Depreciation $4,000 Other operating costs $6,000 Tax rate

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Assume that a $1,00,000 par value, semiannual coupon U.S. Treasury note with five years to maturity (YTM) has a coupon rate of 5%. The yield to maturity of the bond is 11.00%. Using ths information and ignoring the other costs involved, what is the value of the Treasury note?

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If the annual rate of interest on a 2-year treasury note is 10.5% and the rate on a 1-year treasury note is 12%, what rate of interst should you expect on a 1-year treasury note on year from now. Need to see work on how you got the answer.

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Behavioral approaches for dealing with risk include adjusted net present value and risk-adjusted discount rates. True or false?

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Better Buy Bank has assets of $225 million and liabilities of $180 million. The asset duration is 5 years and the duration of the liabilities is 4 years. Market interest rates are 10 percent.This wishes to hedge the balance sheet with Treasury bond futures contracts, which currently have a price quote of $96.75 per $100 face value for the benchmark 20-year market yield of 6.985 percent, and duration of 13.50 years. How many contracts are necessary to fully hedge the bank if the relationship of the price sensitivity of futures contracts to the price sensitivity of underlying bonds were br = 0.95? 326 contracts

400 contracts

550 contracts

615 contracts

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Bilulu Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. WACC: 8.75% Year 0 1 2 3 4 CFS -$1,100 $375 $375 $375 $375CFL -$2,200 $725 $725 $725 $725

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Bilulu Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. WACC: 8.75% Year 0 1 2 3 4 CFS -$1,100 $375 $375 $375 $375CFL -$2,200 $725 $725 $725 $725

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Birmingham Manufacturing presently has a capital structure consisting of 70% debt and 30% equity and the firm wishes to maintain this capital structure. In order to undertake new projects, however, the firm will need to raise additional capital. The firm presently has $21,000,000 in retained earnings that are available at a cost of equity of 15%. Beyond the $21,000,000 in retained earnings, capital raised through the issuance of additional common stock will cost the firm 20%. If the firm raises additional capital through debt the first $70,000,000 in debt will carry an after tax cost of 12%. Beyond $70,000,000 in debt the firm%u2019s after tax cost of debt would rise to 16%. Determine the breaking points and the WMCC for the firm Given the following 6 projects under consideration by Birmingham, their respective IRR%u2019s and ICO, which projects should Birmingham undertake? Justify your answer. Project ICO IRR 1 $30,000,000 15% 2 $25,000,000 20% 3 $20,000,000 17% 4 $10,000,000 19% 5 $15,000,000 18% 6 $5,000,000 16%

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You have $25,000 in an investment account today. How much will be in the account in 30 years if the account earns (a) 8% per year, (b) 8% compounded semiannually, (c) 8% compounded quarterly, (d) 8% compounded monthly, and (e) 8% compounded daily? Comment on the effect of more frequent compounding.

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20. Which of the following statements is CORRECT? a. Suppose a firm changes its credit terms from net 30 days (no discounts) to 3/10, net 40, and this change leads to a 5% increase in total sales. We can be virtually certain that the firm’s accounts receivable balance will also increase. b. If a firm offers lenient credit terms to financially weak customers, this might enable it to report high sales and profits. However, some customers might not pay their bills, end up as bad debts, and thus cause the firm to report lower profits in subsequent periods. c. A firm with excess capacity and relatively low variable costs would be less inclined to extend liberal credit terms than the same firm if it were operating at close to capacity. d. A revolving credit agreement is a particular type of line of credit that firms with surplus cash use in order to obtain a higher rate of return on their cash balances.

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You find that the bid and ask prices for a stock are $10.25 and $10.30 respectively. If you purchase or sell the stock you must pay a flat commission of $25. If you buy 10 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars?

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6. Which of the following statement is CORRECT? a. It is always better to have a relatively short than a relatively long cash conversion cycle. b. The length of the cash conversion cycle represents a tradeoff between risk and return. c. The length of the cash conversion cycle has no effect on a firm’s profitability. d. The length of the cash conversion cycle might have an effect on a firm’s profitability, but it is impossible to state if that effect is positive or negative.

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4. Suppose that Sales for the entire year were $100,000 and Cost of goods sold was 80% of sales. The Inventory conversion period is 40 days, the accounts payable balance is $2000, and the operating cycle is 60 days. What is the accounts receivable balance? a) 4780 b)5479 c)6238 d)7979 What is the accounts payable deferral period? a)9 days b)12 days c) 15 days d)21 days

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1.Find the required payment for the following sinking fund: quarterly deposits earning 6.4% to accumlate $50,000 after 20 years. 2. at what rate of interest, compounded annually, will a sum of money double itself in 6 years?

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Schalheim Sisters Inc. has always paid out all of its earnings as dividends, hence the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?

a. Expected inflation increases.

b. The flotation costs associated with issuing new common stock increase.

c. The company’s beta increases.

d. The market risk premium declines.

e. The flotation costs associated with issuing preferred stock increase.

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Clemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project’s 3-year life. What is the project’s Year 1 cash flow? Equipment cost (depreciable basis)

$65,000

Straight-line depreciation rate

33.333%

Sales revenues, each year

$60,000

Operating costs (excl. depreciation)

$25,000

Tax rate

35.0%

a. $28,836

b. $30,333

c. $31,092

d. $28,115

e. $29,575

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1. A stock’s contribution to the market risk of a well-diversified portfolio is called ________________ risk. (systematic or unsystematic) 2. Beta coefficients are generally calculated using historical data. (True or False) 3. Higher-beta stocks are expected to have higher required rates of returns. (True or False) 4. Stock A’s beta is 1.0; this means that the stock has a negative correlation with the market. (True or False)

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In December 2012, a retired waitress in Massachusetts won a lottery of $5.6 million. They can either give her a lump sum of $5.6 million or pay her $320,000 immediately and then $320,000 per year for the next 19 years. The time value of money to her is 8 percent. What choice will she make and why? (Ignore the tax effect).

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As debt is substituted for equity in the capital structure and the debt ratio increases, all of the following statements about the component costs of capital are true except: – The cost of debt continually increases – The overall cost of capital first declines, reaches a minimum, and then rises again – the overall cost of capital continually increases – the cost of equity continually increases. Which one ?

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Despite their focus on total risk, RADSs are often used in practise. True or false ?

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Corporations that invest surplus funds in floating-rate preferred stock benefit from getting a relatively stable price, and they also benefit from the 70% tax exemption on preferred dividends received.

a. true b. false

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Compute the present value of a $110 cash flow for the following combinations of discount rates and times: (Do not round intermediate calculations. Round your answers to 2 decimal places.) Present Value a. r = 10%, t = 9 years

$

b. r = 10%, t = 18 years c. r = 5%, t = 9 years d. r = 5%, t = 18 years

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a company reported $ 24000 of net income. in addition, dividends paid were $ 4000, accounts payable increased by $ 4000, accounts receivable decreased $ 3000, inventory increased by $ 6500, land was purchased for $ 21800, and depreciation expense was $ 3400. A- Clculate the net cash flow from operating activites? B- Clculate the net cash flow from financing activities? Explain the answer?

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compagnies involved in international capital budgeting projects can minimize the long-term currency risk by financing the foreign investment at least partly in the local capital markets. True or false ?

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Your company is considering a machine that will cost $ 5,515 at Time 0 and which can be sold after 3 years for $ 563 . To operate the machine, $ 445 must be invested at Time 0 in inventories; these funds will be recovered when the machine is retired at the end of Year 3. The machine will produce sales revenues of $ 1,226 /year for 3 years; variable operating costs (excluding depreciation) will be 46 percent of sales. Operating cash inflows will begin 1 year from today (at Time 1). The machine is in the 3-year MACRS class. The MACRS class has depreciation of 33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4. The company has a 41 percent tax rate, enough taxable income from other assets to enable it to get a tax refund from this project if the project’s income is negative, and a 10 percent cost of capital. Inflation is zero. What are the total cash flows in year 2?

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The common stock of Escapist Films sells for $30 a share and offers the following payoffs next year: Dividend

Stock Price

Boom

0

$21

Normal economy

$1

32

Recession

3

36

All three scenarios are equally likely.

a.

Calculate the expected return of Escapist. (Negative values should be indicated by a minus sign.)

Expected Return Boom

%

Normal economy

%

Recession

%

b.

Calculate the standard deviation of Escapist. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Standard deviation

%

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A company is considering investing 2 million on improving its services. This is justified on the grounds that it will allow the business to extend the range of products offered. In particular the management are interested in selling electronic gadgets and have estimated the following with the gadget busines:

T=1, Cost=5 million, PV net receipts = 4 million, volatility=40% and risk free rate = 5%. Answer the following: Should the retailer proceed with investing in the ordering system based on the gadget business? And Discuss what real options are and how they can be used by a firm? Please include details.

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A congeneric merger is one where the merging firms operate in related businesses but do not necessarily produce the same products or have a producer-supplier relationship.

a. true b. false

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Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one project higher but the IRR method puts the other one first. In theory, such conflicts should be resolved in favor of the project with the higher IRR.

a. true b. false

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If a company enters bankruptcy court, bondholders should realize Answer 1.

convertible debt is superior because it may be converted into common stock

2.

subordinated debt is paid off at face value

3.

bondholders may lose their investments

4.

stockholders have the superior position

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Consider the following income statement for WatchoverU Savings Inc. (in millions):

Assets

Liabilities

Floating-rate mortgages (currently 12% annually)

$

30-year fixed-rate loans (currently 9% annually)

Total

$

a.

66

NOW accounts (currently 8% annually)

$

66

Time deposits (currently 8% annually)

30

Equity

16

132

86

$

132

What is WatchoverUs expected net interest income at year-end? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. (e.g., 32.16))

Net interest income

b.

$ million

What will be the net interest income at year-end if interest rates rise by 3 percent? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. (e.g., 32.16))

Net interest income

$ million

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You are considering to invest in shares of a mutual fund. This fund is offering class A shares with a onetime fee of 5.25%on the end of the year value of and an annual fee of 0.95% based investors’ investment. Historically, this fund has been able to grow at 8% per year. What should be your rate of return if you have $12,500 to invest in this fund if you invest today and liquidate your investment in one year?

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Constant growth: Johnson Corporation has just paid a dividend of $4.45. The company has forecasted a growth rate of 8 percent for the next several years. If the appropriate discount rate is 14 percent, what is the current price of this stock? (Round to the nearest dollar.) A

$74 B

$32

C

$80

D

$60

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Consider a mutual fund with $300 million in assets at the start of the year, and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 0.75% of the year end value, what is the rate of return on the fund?

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Watson Oil recently reported (in millions) $8,250 of sales, $5,750 of operating costs other than depreciation, and $650 of depreciation. The company had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how much did the firm’s net income exceed its free cash flow?

a. $836

b. $718

c. $756

d. $878

e. $796

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1.Suppose the 5-year interest rate on a dollar-denominated pure discount bond is 4.5% p.a., whereas in France, the euro interest rate is 7.5% p.a. on a similar pure discount bond denominated in euros. If the current spot rate is $1.08/%u20AC, what is the value of the forward exchange rate that prevents covered interest arbitrage?

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1) Sycamore Home Furnishings is considering acquiring a new machine that can create customized window treatments. The equipment will cost $287,942 and will generate cash flows of $75,318 over each of the next six years. If the cost of capital is 14.88 percent, what is the MIRR on this project? 2)An investment of $137692 is expected to generate an after-tax cash flow of $88100 in one year and another $110196 in two years. The cost of capital is 10 percent. What is the internal rate of return?

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1.As a trader for Bear Sterns you see the following prices from two different banks: 1-year euro deposits/loans:

6.0% %u2013 6.125% p.a.

1-year Malaysian ringgit deposits/loans:

10.5% %u2013 10.625% p.a.

Spot exchange rates:

MYR 4.6602 / EUR %u2013 MYR 4.6622 / EUR

1-year forward exchange rates:

MYR 4.9500 / EUR %u2013 MYR 4.9650 / EUR

The interest rates are quoted on a 360-day year. Is there an opportunity for covered interest arbitrage? Support your answer with calculation.

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1. (TCO B) Estimating Procedures (a) You are the project manager for a new high-rise office building. You are working on estimating the exterior landscaping for the new development. The landscaping requires the use of a special landscape stone. Based on recent experience the most likely price for the material is $120.00/ton. However, the price for this stone is volatile, and the price fluctuates over time based on market conditions and material availability. The most optimistic price estimate is $60.00/ton, and the most pessimistic estimate is $160.00/ton. (Note there are 3 data points in for this estimate.) What is the expected price of the material? (b) In addition to price fluctuations, you are also uncertain of how much of the material will be required for the project. Scope changes and site conditions will affect the amount of material actually needed. The most likely amount required is 36 tons. However, as little as 28 tons or as much as 56 tons might be required. What is the expected amount of the material needed for the project? (c) Using the estimates from (a) & (b) what is the expected cost for the material over the life of the project using the COMPLEX method? (Points : 30)

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1. what is the yield to maturity on Dotte Inc’s bonds if its after-tax ost of debt is 10% and it’s tax rate is 35%? 2. Which of the following changes offer the greatest chance of changing a project’s NPV from negative to possitive? Reducing risk Substituting preferred stock for debt Decreasing the marginal tax rate Selling the debt at less than par value 3. what is the approx variance of returns if over the past 3 years an investment returned 8.0%, -12% and 15%?

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1. (TCO 4) Which of the following is true regarding the evaluation of projects? (Points : 4) sunk costs should be included erosion effects should not be considered financing costs are not included opportunity costs are irrelevant 2. (TCO 4) There are several disadvantages to the payback method, among them: (Points : 4) payback ignores cash flows beyond the cutoff. payback can be used in conjunction with time adjusted methods of evaluation. payback is easy to use and to understand. none of the above is a disadvantage. 3. (TCO 3 and 4) The net present value is: (Points : 4) negative when a project’s benefits exceed its costs. equal to the present value of an investment’s benefits. equal to zero when the discount rate equals the IRR. negative when a project’s IRR exceeds the required rate of return. the current measure of a project’s cash inflows. 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent? Year 0 1 2 3 4 Cash flow -$32,000 $9,000 $10,000 $15,200 $7,800 (Points : 4) $1,085.25 $1,193.77 $3,498.28 $4,102.86 $4,513.15 5. (TCO 4) The Inventive Co. is considering a new project. This project requires an initial cash investment of $70,000. The project will generate cash inflows of $10,500 in the first year. Then, the project will do nothing for two years, after which time cash inflows of $25,000 will be generated for four years. How long will it take the Inventive Co. to recover its $70,000 investment? (Points : 4) 5.16 years 5.38 years 6.11 years 6.62 years 6.94 years 6. (TCO 4) The postponement of a project until conditions are more favorable: (Points : 4) is not a valuable option. is referred to as the option to extend. could cause a negative net present value project to become a positive net present value project. will generally cause the internal rate of return for a project to decline. 7. (TCO 4) ____________, refers to the situation a firm faces when it has positive net present value projects, but cannot obtain financing for those projects. (Points : 4) capital planning. soft rationing. capital rationing. hard rationing. a sunk cause. 8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? (Points : 4) The net present value of the project is approximately $10,000 This project should be accepted because it has a positive net present value This project’s payback period is 10 years or more None of the above is true 9. (TCO 4) Assume Company X plans to invest $60,000 in new computers. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the second year depreciation amount under MACRS? (Points : 4) $12,000 $19,200 $19,800 None of the above 10. (TCO 1 and 4) Assume a corporation has earnings before depreciation, and taxes of $100,000, depreciation of $40,000, and that it has a 30 percent tax bracket. What are the after-tax cash flows for the company? (Points : 4) $82,000 $110,000 $42,000 none of these 11. (TCO 8) Which of the following statements is true regarding systematic risk? (Points : 4) is diversifiable is the total risk associated with surprise events it is not project or firm specific it is measured by standard deviation 12. (TCO 8) Which statement is not true regarding risk? (Points : 4) the expected return is usually not the same as the actual return a key to assess risk is determining how much risk an investment adds to a portfolio some risks can not be decreased or mitigated by the financial manager. the higher the risk, the higher the return investors require for the investment all of the above are true statements 13. (TCO 8) The stock of Hobby Town has an expected return of 8.8 percent. Given the information below, what is the expected return on this stock if the economy is normal? State of Economy Probability of State of Economy Rate of Return Recession .10 -.09 Normal .70 ? Boom .20 .26 (Points : 4) 3.86 percent 4.42 percent 6.43 percent 7.28 percent 8.21 percent 14. (TCO 8) You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of stock A? (Points : 4) 14.79 percent 15.91 percent 18.42 percent 19.07 percent 25.72 percent 15. (TCO 8) You currently own a portfolio valued at $24,000 that has a beta of 1.1. You have another $8,000 to invest, and would like to invest it in a manner such that the risk of the new portfolio matches that of the overall market. What does the beta of the new security have to be? (Points : 4) .46 .55 .61 .70 .90 1. (TCO 8) Company insiders cannot earn excess profits based on the knowledge they have related to their employer if the financial markets are: (Points : 4) weak form efficient. strong form efficient. semistrong form efficient. efficient at any level. aware that the trader is an insider. 2. (TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be financed with debt at a cost of 6 percent (after-tax) and common equity at a cost of 18 percent. Assume debt and common equity each represent 50 percent of the firm’s capital structure. What is the weighted average cost of capital? (Points : 4) between 3 and 9% exactly 12% more than 14% exactly 11% none of the above 3. (TCO 5, 6 and 7) An issue of common stock’s most recent dividend is $3.75. Its growth rate is eight percent. What is its price if the market’s rate of return is 16 percent? (Points : 4) $25.01 $46.88 $50.63 none of these 4. (TCO 5, 6 and 7) Which of the following is not true regarding the cost of debt? (Points : 4) It is the return that the firm’s creditors demand on new borrowing. It is the interest rate that the firm pays on current/existing borrowing. An appropriate method to compute the cost of debt is using the YTM of current bonds outstanding. It needs to be converted into an after-tax cost. 5. (TCO 5) Which of the following is not true regarding the cost of retained earnings? (Points : 4) it is relevant to the WACC does not require new funds to be raised has associated flotation costs has a cost, which is the opportunity cost associated with stockholder funds 6. (TCO 4) A project has the following cash flows. What is the internal rate of return? Year 0 1 2 3 Cash flow -$520,000 $112,900 $367,200 $204,600 (Points : 4) less than 10% approximately 14% more than 16% more than 18% but less than 20% 7. (TCO 5, 6 and 7) Which one of the following is a correct statement regarding a firm’s weighted average cost of capital (WACC)? (Points : 4) the WACC can be used as the required return for all new projects. the WACC of a leveraged firm will decrease when the tax rate decreases. an increase in the market risk premium will tend to decrease a firm’s WACC. the WACC is a starting point for the subjective approach to setting discount rates. a reduction in the risk level of a firm will tend to increase the firm’s WACC. 8. (TCO 5, 6 and 7) The preferred stock of Blue Sky Air pays an annual dividend of $7.25 a share and sells for $54 a share. The tax rate is 35 percent. What is the firm’s cost of preferred stock? (Points : 4) 8.56 percent 9.32 percent 11.85 percent 13.43 percent 14.47 percent 9. (TCO 2) Which one of the following statements is true concerning a bankruptcy? (Points : 4) a Chapter 7 bankruptcy is a reorganization proceeding. a “prepack” is intended to shorten the time a firm spends in bankruptcy. the absolute priority rule applies to both Chapter 7 and Chapter 11 bankruptcy proceedings, and must be adhered to by the courts. creditors cannot force a firm into bankruptcy, even though they might like to do so. a reorganization plan, can only be approved if the firm’s creditors all agree with the plan. 10. (TCO 5) Which of the following statements is true regarding the cost of capital? (Points : 4) The cost of capital should not consider any flotation costs. All other being equal, it is preferable to use book value weights than market value weights. The WACC is the most appropriate discount rate for all projects. Depends primarily on the use of the funds, not the source. 11. (TCO 2) Select any actions that do not affect the cash account. (Points : 4) Goods are sold cash An interest payment on a notes payable is made A payment due is received from a client Dividends are paid to shareholders Inventory is purchased and paid for with credit 12. (TCO 2) Which of the following statements is true? (Points : 4) Firms should avoid offering credit at all cost. An increase in a firm’s average collection period generally indicates that an increased number of customers are taking advantage of the cash discount. The costs of the credit application process and the costs expended in the collection process are carrying costs of granting credit. Character, refers to the ability of a firm to meet its credit obligations out its operating cash flows. The optimal credit policy, is the policy that produces the largest amount of sales for a firm. 13. (TCO 2) All else constant, a decrease in the accounts receivable period will: (Points : 4) lengthen the accounts payable period. shorten the inventory period. lengthen the operating cycle. shorten the cash cycle. shorten the accounts payable period. 14. (TCO 2) Highland, Inc. has the following estimated quarterly sales for next year. The accounts receivable period is 30 days. How much does the firm expect to collect in the fourth quarter? Assume that each month has 30 days. Q1 Q2 Q3 Q4 Sales $3,200 $4,500 $4,400 $2,900 (Points : 4) $3,250 $3,400 $3,600 $3,750 $3,900 15. (TCO 1) Which one of the following actions best matches the primary goal of financial management? (Points : 4) increasing the net, working capital while lowering the long-term asset requirements improving the operating efficiency, thereby increasing the market value of the stock increasing the firm’s market share reducing fixed costs and increasing variable costs increasing the liquidity of the firm by transferring short-term debt into long-term debt 1. (TCO 1) Which of the following are capital structure concerns? I. how to obtain short-term financing II. the company’s financing mix III. the cost of funds IV. how and where to raise money (Points : 4) I and II I, II and III II, III and IV I, III and IV All of the above 2. (TCO 1) Market value is important to the financial manager because: (Points : 4) It reflects the value of the asset based on generally-accepted accounting principles. Is a crucial component of the balance sheet, and can impact the financial statements. Market values reflect the amount someone is willing to pay today for an asset. The market value of an asset reflects its historical cost. 3. (TCO 1) Use the following tax table to answer this question: Taxable Income Tax Rate $0- $50,000 15% $50,001- 75,000 25 $75,001- 100,000 34 $100,001- 335,000 39 $335,001- 10,000,000 34 McKenzie, Inc. earned $144,320 in taxable income for the year. What is the company’s approximate average tax rate? (Points : 4) 27% 29% 31% 33% 35% 4. (TCO 3) Regional Bank offers you an APR of 19 percent compounded semiannually, and Local Bank offers you an EAR of 20.10 percent for a new automobile loan. You should choose ______________ because its _______ is lower. (Points : 4) Regional Bank, APR Local Bank, EAR Regional Bank, EAR Local Bank, APR 5. (TCO 3) You deposited $8,000 in your bank account today. Which of the following will increase the future value of your deposit, assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all that apply: (Points : 4) a decrease in the interest rate increasing the initial amount of your deposit decreasing the frequency of the interest payments extending the length of the investment period 6. (TCO 3) You want to have $15,000 for a down payment on a house five years from now. If you can earn 13 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal? (Points : 4) $7,858.11 $8,141.40 $9,803.58 $12,464.28 $14,213.25 7. (TCO 3) The new home that you want to buy costs $249,500. You plan to make a cash down payment of 20 percent and finance the balance over 10 years at 6.75 percent. What will be the amount of your monthly mortgage payment? (Points : 4) $2,291.89 $2,809.10 $3,287.46 $3,412.67 $4,145.68 8. (TCO 3) Which type of loan is comparable to the present value of a future lump sum? (Points : 4) effective annual rate amortized interest-only annual percentage pure discount 9. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 13 percent? Assume annual payments. (Points : 4) $1078 $1085 $927 $1000 10. (TCO 6) The market where new securities are offered is called the _____ market. (Points : 4) primary main secondary principal dealer 11. (TCO 7) Which one of the following statements concerning financial leverage is correct? (Points : 4) The benefits of leverage are unaffected by the amount of a firm’s earnings. The use of leverage will always increase a firm’s earnings per share. The shareholders of a firm are exposed to greater risk anytime a firm uses financial leverage. Earnings per share are unaffected by changes in a firm’s debt-equity ratio. Financial leverage is beneficial to a firm only when the firm has minimal earnings. 12. (TCO 3) What is the approximate yield to maturity for a seven-year bond that pays 11 percent interest on a $1000 face value annually if the bond sells for $952? (Points : 4) 10.5% 10.6% 11.5% 12.1% 13. (TCO 8) Which of the following is true regarding bonds? (Points : 4) Bonds do not carry default risk. Bonds are not sensitive to changes in the interest rates. Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk. Municipal bonds are not free of default risk. None of the above is true 14. (TCO 8) Two years ago, MorningStar Company issued seven percent, 25-year bonds and Track, Inc. issued seven percent, 10-year bonds. Since their time of issue, interest rates have increased. Which of the following statements is true of each firm’s bond prices in the market, assuming they have equal risk? (Points : 4) Track’s decreased more than Morningstar’s Morningstar’s increased more than Track’s Morningstar’s decreased more than Track’s They are both priced the same 15. (TCO 6) Star Industries has one bond issue outstanding. An indenture provision prohibits the firm from redeeming the bonds during the first two years. This provision is referred to as a _____ provision. (Points : 4) deferred call market liquidity debenture sinking fund 1. (TCO 6) Which of the following is true regarding income bonds? (Points : 4) Are relatively uncommon Can be exchanged for a fixed number of shares at maturity only Can be exchanged for a fixed number of shares before maturity Allow the holder to require the issuer to buy the bond back 2. (TCO 6 and 7) Financial leverage deals with: (Points : 4) the relationship of fixed and variable costs. the percentage of debt in the capital structure. the entire income statement. the entire balance sheet. 3. (TCO 6) Company A has a bond outstanding with $90 annual interest payment, a market price of $820 and a maturity date in five years. Assume the par value to be $1,000. What is the bond’s coupon rate and current yield, respectively? (Points : 4) 11% and 9% 9% and 11% 9% and 14% Cannot be determined None of the above 4. (TCO 2) Which of the following does not reduce collection float? (Points : 4) installing a lockbox system. deposit collections weekly, instead of daily. requiring all customers pay by cash, rather than with check. utilize the benefits of the Check Clearing Act for the 21stCentury. 5. (TCO 2) Storage and tracking costs, insurance and taxes, and losses due to theft are examples of: (Points : 4) Inventory depletion costs Sunk costs Carrying costs Shortage costs

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14. (TCO 4) You are considering two investments. Investment I is in a software company, and Investment II is an engineering company. The investments offer the following cash flows: YEAR

SOFTWARE COMPANY

ENGINEERING COMPANY

1

$5,000

$15,000

2

$3,000

$8,000

3

$4,000

$9,000

4

$3,600

$11,000

If the appropriate discount rate is 10 percent, what is the approximate present value of the Engineering Company investment? (Points : 3)

$33,200 $34,500 $42,000 $43,500 13. (TCO 3) Fine Oak Woodworks is considering a project that has cash flows of $6,000, $4,000, and $3,000 for the next three years. If the appropriate discount rate of this project is 10 percent, which of the following statements is true? (Points : 3)

The current value of the project%u2019s inflows is $13,000 The approximate current value of the project%u2019s inflows is $11,000 The current value of the project%u2019s inflows cannot be determined The project should be rejected because its present value is negative 3. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 13 percent? Assume annual payments. (Points : 3)

$1078 $1085 $927 $1000 5. (TCO 3) Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $850. The annual coupon payments are $80. If the bonds have 10 years until maturity, what is the approximate YTM of the bonds? 10.50% 11.50% 11.75% 12%

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14. (TCO 4) You are considering two investments. Investment I is in a software company, and Investment II is an engineering company. The investments offer the following cash flows: YEAR

SOFTWARE COMPANY

ENGINEERING COMPANY

1

$5,000

$15,000

2

$3,000

$8,000

3

$4,000

$9,000

4

$3,600

$11,000

If the appropriate discount rate is 10 percent, what is the approximate present value of the Engineering Company investment? (Points : 3)

$33,200 $34,500 $42,000 $43,500

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You have $10,000 to invest and you are considering investing in a fund. The fund charges a front-end load of 5.75% and an annual expense fee of 1.25% of the average asset value over the year. You believe the fund’s gross rate of return will be 11% per year. If you make the investment, what should your investment be worth in one year? $10,461.75 $10,556.23 $10,135.48 $10,578.92 $10,337.46

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16. Suppose the firm were to buy Inventory on credit (both inventory and accounts payable will increase by the same amount). Which ratio will NOT be affected? a) Current Ratio b) Return on Assets c) Equity Multiplier d) Return on Equity

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You have $16,000 to invest in a mutual fund with a NAV = $45. You choose a fund with a 4% front load, a 1% management fee, and a 0.25% 12b-1 fee. Assume that the management and 12b-1 fees are charged on year-end assets. The gross annual return on the fund’s shares was 9%. What was your net annual rate of return to the nearest basis point? 6.25% 4.52% 3.33% 4.64% 7.64%

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16. What is the effective cost of a six-month discount loan with a stated rate of 8%? a) 7.86% b) 8.33% c) 8.51% d) 9.23%

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18. Which of the following statements is CORRECT? a. Loans documented by promissory notes may be secured by specific collateral or secured only by the borrower’s general credit strength. If security is used, then long-term loans are likely to be secured by fixed assets, while short-term loans are likely to be secured by accounts receivable or inventories. b. A promissory note is a document that sets forth the terms under which a firm borrows money. If the note calls for repayment in more than one year, then it is not likely to be secured by any specific collateral. However, collateral generally is required as security for note that mature in more than one year. c. The interest rate on a promissory note is always fixed. Thus, notes do not have adjustable rates like those often found on mortgages and bonds. d. Federal regulations as specified in the Bankruptcy Act of 2005 prohibit banks from requiring that a borrower obtain a guarantee from some other party that the third party will repay the loan if the borrower defaults.

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14. Grandiose Growth has a dividend growth rate of 20%. The discount rate is 15%. The end-of-year dividend will be $2 per share. a.

What is the present value of the dividend to be paid in year 1? Year 2? Year 3? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Present Value Year 1

$

Year 2 Year 3

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19. The following are the cash flows of two projects:

Year

Project A

Project B

0

%u2212$310

%u2212$310

1

140

210

2

140

210

3

140

210

4

140

a.

Calculate the NPV for both projects if the discount rate is 10%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Project

NPV

A

$

B

b.

Suppose that you can choose only one of these projects. Which would you choose?

Project A Project B

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13. Which of the following statements is TRUE? a. Short term debt tends to be more expensive than long term debt b. Low levels of inventory lead to higher profit margins. c. Maturity matching is generally considered to be an aggressive financing policy. d. Some firms choose to hold highly liquid, short-term securities as a substitute for demand deposits because securities earn interest and can be quickly converted to cash should cash be needed.

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With this case, a comparison is made between three firms in different industries using net profit margin, total asset turnover and current ratio. Net Profit Margin Total Asset Turnover Current Ratio Firm A 1.67% 3.40 times 1.16 Firm B 21.48% 1.06 times 2.01 Firm C 4.44% 1.49 times 1.71 1. Apple Fiscal year 2010 ended September 25, 2010, and consisted of 52 weeks ” Apple, Inc. and its wholly-owned subsidiaries (collectively ” Apple: or the ” Company: ) designs, manufactures and markets a range of personal computers, mobile communication and media devices, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications.: 10-K Source: Apple, 2010 10-K 2. Costco Wholesale Corporation Fiscal year ended August 29, 2010, and consisted of 52 weeks ” We operate membership warehouses based on the concept that offering our members low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover.: 10-K Source: Costco Wholesale Corporation 2010 10-K 3. Target Corporation Fiscal year 2010 ended January 29, 2011, and consisted of 52 weeks ” Our Retail Segment includes all of our merchandising operations, including our fully integrated online business. We offer everyday essentials and fashionable, differentiated merchandise at discounted prices.: 10-K Source: Target Corporation 2010 10-K Required a. Which firm is Firm A? Comment on your reasons. b. Which firm is Firm B? Comment on your reasons. c. Which firm is Firm C? Comment on your reasons.

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You have the chance to buy either one of two bonds. The first in a tax-free municipal with a yield of 6.5%. The second is a corporate bond with a yield of 8.5%. Both bonds are rated AA. Your tax rate is 28%. Which would you choose? (Show all work)

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Eakins Inc.’s common stock currently sells for $45.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the public at the current price, but a flotation cost of 8% would be incurred. By how much would the cost of new stock exceed the cost of retained earnings?

a. 0.84%

b. 0.09%

c. 0.37%

d. 0.19%

e. 0.56%

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Following are the probability distributions for Investment A, Investment P, and Investment Z: Economic State Probability rA rp rz Booming .2 30% 30% 2% Normal .5 17 12 9 Recessionary .3 -5 -2 27 Calculate: a. Expected rate of return for each investment b. Standard deviation for each investment c. Coefficient of variation for each investment d. Based on your compuations, which investment provides the best risk/return relationship? e. If you could only purchase two of the investments, which ones would be chosen to form a portfolio with the lowest risk? Please explain.

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Which of the following reduces the investor’s risk associated with investing in bonds? 1.

a sinking fund

2.

a restriction on dividend payout

3.

a call feature

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Which of the following risk types can be diversified away by adding stocks to a portfolio? Inflation risk

Unique risk

Interest rate risk

Market risk

What are free cash flows (FCF) for a firm with … EBITDA = 6,000, EBIT = 5,000, Net Income = 4,000, Taxes = 300, Depreciation = 1,000, this year’s current assets = 4,000, this year’s current liabilities = 1,000, last year’s current assets = 5,000, last year’s current liabilities = 2,000, and Dividends = 300, and Capital expenditures = 1,000. Answer 4,400

4,700

5,700

none of the above

An investor buys a stock for $80, and one year later receives a $5 dividend and sells the stock for $79. What was the investor’s return? Answer 2%

4%

5%

8%

What is the WACC for a firm with 20% debt, 50% equity and 30% preferred equity? Assume its cost of debt is 11%, cost of equity is 20% and its cost of preferred equity is 15%. The tax rate is 35%. Answer 12.6%

14.0%

14.9%

15.9%

Which of the following changes in working capital will result in an increase in cash flows? Answer Increase in accounts payable

Increase in inventories

Increase in accounts receivable

Decrease in other current liabilities

How much would you need to save every year starting next year for you to have $10,000,000 in your retirement account in 20 years. Assume all interest is reinvested and the rate on the account is 12%. Answer $135,665

$138,074

$138,787

$145,109

What is the present value of a 5 period annuity of $3,000 if the interest rate is 12% and the first payment is in one period? Answer 9,112

10,814

12,112

13,200

What is worth more, $100 in one year or $121 in three years if interst rates are 15%? Answer $100 in one year

$121 in three years

They are equal

None of the above

A stock is expected to have a dividend of $10 in one year and $11 in two years and then grow its dividend at a constant 10%/year forever. If the discount rate is 12%, what should be the current stock price? 250

450

500

None of the above

When a sole proprietorship fails, the maximum that can be lost by the proprietor is: the amount of her invested money.

the amount of the profit on the investment.

the amount necessary to pay her debts.

the amount of the proprietor’s personal wealth.

Beta measures a stock’s sensitivity to unique risk. True False The discount rate that makes the npv = 0: internal rate of return.

yield to maturity.

current yield.

coupon rate.

What is the periodic rate for a 12% APR assuming quarterly compounding? 1%

2%

3%

4%

Which of the following cash flows should be included when calculating a proposed project’s future cash flows? project expenses already paid for

financing costs

sunk costs

taxes

Question 38 If you own a share of stock in Apple and decide to sell it through your broker, the share will be sold on a primary market. True False

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Which of the following statements is CORRECT?

a. The corporate valuation model requires the assumption of a constant growth rate in all years.

b. To implement the corporate valuation model, we discount projected free cash flows at the weighted average cost of capital.

c. To implement the corporate valuation model, we discount projected free cash flows at the cost of equity capital.

d. To implement the corporate valuation model, we discount projected net income at the weighted average cost of capital.

e. To implement the corporate valuation model, we discount net operating profit after taxes (NOPAT) at the weighted average cost of capital.

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Which of the following statements is most CORRECT?

a. Acquiring firms send a signal that their stock is undervalued if they choose to use stock to pay for the acquisition.

b. If a company that produces military equipment merges with a company that manages a chain of motels, this is an example of a horizontal merger.

c. In a liquidation, the firm’s existing stockholders are given new stock representing separate ownership rights in the division that was divested. The division establishes its own board of directors and officers, and it becomes a separate company.

d. A defensive merger is one where the firm’s managers decide to merge with another firm to avoid or lessen the possibility of being acquired through a hostile takeover.

e. If there are no synergistic benefits to be gained from a merger, the acquiring company will stop its plans for the merger. However, if synergistic gains are large, plans for the merger will continue. In fact, the greater the synergistic gains, the smaller the gap between the target’s current price and the maximum the acquiring company could pay because of the acquiring company’s upper hand in the merger.

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Which of the following statements is CORRECT?

a. All else equal, a bond that has a coupon rate of 10% will sell at a discount if the required return for bonds of similar risk is 8%.

b. For a given firm, its debentures are likely to have a lower yield to maturity than its mortgage bonds.

c. When large firms are in financial distress, they are almost always liquidated, whereas smaller firms are generally reorganized.

d. The total return on a bond during a given year is based only on the coupon

interest payments received.

e. The price of a discount bond will increase over time, assuming that the bond’s yield to maturity remains constant.

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18. The following are the cash flows of two projects:

Year

Project A

Project B

0

%u2212$230

%u2212$230

1

110

130

2

110

130

3

110

130

4

110

a.

If the opportunity cost of capital is 11%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.)

Project

Profitability Index

A B

b.

Does the profitability index rank the projects correctly?

Yes No

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Following are the estimated after-tax cash flows for two mutually exclusive projects: Year Machine D Machine Q 0 32500 29800 1 20500 4000 2 10000 9000 3 6500 16000 4 7800 19500 The companys required rate of return is 16 percent. What is the internal rate of reture (IRR) of the project(s) th company should purchase?

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The Flemings will need $80,000 annually for 20 years during retirement. How much will they need at retirement if they can earn a 4% rate of return. (Show all work)

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Flannigans Fish Flies manufactures fishing lures used in the sport of fly-fishing. Flannigans uses an automated process for manufacturing the fishing lures and as a result they are able to produce a lure similar to those made by hand but at a substantially lower cost. This cost savings is then passed on to the customer in the form of lower prices whereas Flannigans sells its lures for $50 each while hand-made lures made by its competitors sell for between $75 and $100. This price differential has resulted in FFF having a strong position in the market with annual sales of 2,100,000 units. However, this number represents the maximum number the firm can sell given the present production capacity of its fly-tying machines. There is currently excess demand for its Flannigans lures and Flannigans is confident that if they could produce an additional 400,000 lures each year they could indeed sell them at the current price of $50 per unit. As such, Flannigans is considering purchasing another fly-tying machine. Two machines are presently being considered that have the production capacity. The first machine, the Fly Deluxe II is a newer version of the Fly Deluxe which is the current equipment the firm uses. It has a purchase price of $9,575,000. The machine would require an additional $69,000 to be shipped to Flannigans manufacturing facility and $56,000 to be installed. The new machine is equivalent in terms of efficiency and operation to the existing equipment. To that extent the current per unit variable costs for producing the lures with the Fly Deluxe II is expected to remain at $39.00 each. If the firm buys the Fly Deluxe II machine the firm will need to hire four additional workers to run it with each being paid $80,000 annually, including benefits. Maintenance expense on the new Fly Deluxe II machine is expected to be $135,000 annually. The firm expects that the Fly Deluxe II will have a useful life of 5 years after which time the firm expects it could salvage the machine to a used parts firm for $500,000. The second machine the firm is considering is much more automated and is called the Fly Star. It has a purchase price of $12,340,000. The machine would require an additional $86,000 to be shipped to Flannigans manufacturing facility and $74,000 to be installed. As the new machine is more automated the firm would only have to hire three additional workers but since they must be more much skilled their salaries will be $95,000 per worker per year. The variable cost for producing the lures with the Fly Star is, however, lower at $36.50 per unit. Maintenance expense on the new machine is expected to be higher at $250,000 annually given its higher level of automation. The firm expects that the Fly Star will have a useful life of 5 years and that after the fifth year Flannigan%u2019s expects it could salvage the machine to a used parts supplier for $925,000. Both new machines fall under the MACRS five year property class. Regardless of which machine the firm uses, since production will be increased the firm will need to increase working capital during the lifetime of their usage by $160,000. The firms marginal tax rate is expected to remain at 40% for the duration of the usage of each machine. Capital Structure Currently, FFFs capital structure is comprised of both long-term debt in the form of bonds and also common stock. Bonds FFF has outstanding 80,000 bonds each having a par value of $1,000. These bonds mature in 16 years and have an annual coupon rate of 7.5% with semi-annual coupon payments. Currently the bonds are trading at 58% of par. Common Stock FFF has outstanding 7,000,000 shares of common stock. The shares are currently trading at $15.00 per share. FFFs shares paid a dividend of $1.80 per share last year and the dividend is expected to grow at a rate of is 5% this year and forever. THE PROBLEM Given the information: 1. Determine the Initial Cash Outflow, the Interim Year Incremental Cash Flows, and the Terminal Year Incremental Cash Flows for both Fly Deluxe II and Fly Star. 2. Determine Flanningans current weighted average cost of capital (WACC) given the firms current capital structure. 3. Based upon youre the information in (1) and (2) calculate the Payback Period, the Net Present Value, the Profitability Index, and the Internal Rate of Return for the Fly Deluxe II and the Fly Star given the firms current WACC. 4. Given the calculations in (3), which, if any, of the projects are acceptable? Which project(s) should it choose and why?

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You have just won the lottery ! However, the lottery bureau has just informed you that you can take your winnings in one of two ways. Choice X pays $ 1,000,000. Choice Y pays $1,750,000 at the end of five years from now. Using a discount rate of 5 percent, based on present values, which would you choose? What do your results suggest as a general rule for approching such problems ? (Make your choices based purely on the time value of money and show your work.)

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Jims grandfather leaves some money for Jim to get on his 21st birthday. He Jim turns 18 today, and expects to recieve 6,000 at that later date, how much is that future sum worth to jim today if he discounts it by 6% compounded semi-annually?

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If Jim borrows $10,000 to be repaid over 48 months at .5% per month, how much will he still owe after 6 months? Also, how much must Jim pay in interest (total) over the 48 months?

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What is the most important thing to remember about using a time line?

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Kaushik Open Fund is an open end mutual fund that owns 650 share of IBM priced at $190 per share. The fund also owns 500 shares of GE priced at $23.50 per share, and 600 shares of Joy Global priced at $53.45 a share. It also owns 1,000 shares of facebook at $24 per share. The fund itself has 1500 of its own shares outstanding. What is the NAV of a fund’s share?

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Maria will be a college sophomore next year, and she is determined to have her own credit card. She will not be employed during the school year but is convinced that she can qualify for a card based upon her summer earnings. Maria’s parents have read a number of articles about the problems of credit cards and college students, including examples of students leaving school after a downward spiral of credit cards, overspending, working to pay bills, worrying about bills, working more hours to pay bills, and eventually withdrawing from school. When Maria showed up with a handful of applications including Visa, a Gold MasterCard, Discover, a Visa sponsored by her university, an American Express, a secured MasterCard, and a gas company card, her parents were overwhelmed. Maria admitted she didn’t want them all. “I’m not stupid,” she declared. Since Maria obviously needed to learn about credit cards, her parents agreed to co-sign her application on one condition. She had to approach her choice just like a class project and research the following questions: 1. Assuming Maria does not really care about her parents’ approval and ignores their assignment, will she be able to apply for a credit card without their help? Hint: Consider the application process and the five C’s of credit. How important are Maria’s summer earnings in determining whether or not she is issued a card? 2. Why would an unemployed college student possibly need a credit card? What are the advantages to having a credit card? What are the disadvantages? 3. Should Maria have more than one card? What is the recommended number of credit cards for the average consumer? 4. Shopping for credit can be compared to shopping for any other consumer product–consider the product cost, features, advantages, and disadvantages. In other words, does the product meet the user’s needs? Help Maria compare her credit choices given the applications she has collected. 5. Based on the analysis in question 4, what credit card class(es), if any, should Maria seriously consider? For what other “products,” if any, might she consider applications? 6. List and summarize the basic factors that affect credit card costs. Rank these factors in terms of importance and relevance based on Maria’s situation. 7. While comparing the applications she had collected, Maria was thrilled to receive a “preapproved” offer for a standard card. What precautions should Maria be alert to with this offer? 8. In order to convince her parents that she can be responsible when using a credit card, Maria volunteered to use a credit tracking system. How should she explain this method to her parents? 9. To avoid problems, what might be considered the most important rule for Maria to follow when using a credit card? 10. How might Maria’s credit card use impact her future job search? What should she do to avoid any problems? 11. What steps, such as purchasing credit card insurance, should Maria take to protect herself against fraud?

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The margin requirement on a stock purchase is 25%. You fully use the margin allowed to purchase 100 shares of MSFT at $25. If the price drops to $22, what is your percentage loss?

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When the market interest rate rises for a particular quality of bond, the price of the bond falls, which gives investors a new: Answer coupon rate

interest payment amount

yield to maturity

maturity

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1. What is the market value of debt for a firm with $100 million in par value of debt that trades at 90% of par value? Answer $90 million

$100 million

$110 million

None of the above

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If the market risk premium for all risky stocks in the market is 6%, the risk free rate is 5% what would be the beta of Ebay, given that it has a required rate of return determined using the CAPM of 13.9%?

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A Japanese investor can earn a 1% annual interest rate in Japan or about 4% per year in the U.S. If the spot exchange rate is 115 yen to the dollar at what one year forward rate would an investor be indifferent between the U.S. and Japanese investments?

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In a merger with true synergies, the post-merger value exceeds the sum of the separate companies’ pre-merger values.

a. true b. false

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Kelly Inc. is considering a project requiring a $300,000 investment in equipment that will be depreciated straight line to zero at the end of the 4 year project. At the end of the project, Kelly, Inc. expects to receive sales proceeds of $50,000 for the equipment. The firm will also need to invest $70,000 in working capital. The project will generate $100,000 in operating cash flow in each of the 4 years. Calculate the net present value given a 10% rate of return and a 34% tax rate

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Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon rate of 8%, paid annually. Today, the debt is selling at $1,100. The firm%u2019s tax bracket is 20%.

Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $4 per share, and the stock sells for $20.

Micro Spinoffs%u2019s cost of equity is 22%. What is its WACC if equity is 50%, preferred stock is 20%, and debt is 30% of total capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

WACC

%

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——— leverage is concerned with the relationship between earnings before interest and taxes and earnings per share. A) Variable B) Financial C) Total D) Operating

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Leveraged buyouts (LBOs) occur when a firm’s managers, generally backed by private equity groups, try to gain control of a publicly owned company by buying shares in the company using large amounts of borrowed money.

a. true b. false

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Joe Mauer, a catcher for the Minnesota Twins, is expected to hit 23 home runs in 2012. If his home run hitting ability is expected to grow by 12 percent every year for the following five years, how many home runs is he expected to hit in 2017? (If you solve this problem with algebra round intermediate calculations to 4 decimal places, in all cases round your final answer to the nearest whole number.) Expected home runs in 2017 Please show the work to this question thank you

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A joint venture is one in which two, or sometimes more, independent companies agree to combine resources in order to achieve a specific objective, usually limited in scope.

a. true b. false

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Micro Spinoffs, Inc., issued 10-year debt a year ago at par value with a coupon rate of 7%, paid annually. Today, the debt is selling at $1,350. If the firm%u2019s tax bracket is 40%, what is its after-tax cost of debt? (Do not round intermediate calculations. Round your answer to 2 decimal places.) After-tax cost of debt

%

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Your mortagage payment is $1,500 per month. Of this amount, insurance is $50, property taxes are $200, and interest is about $1,100. Assuming you have other itemized deductions that already exceed your standard deduction and that you are in the 31% marginal tax bracket, what is the reduction in your tax liability as a result of owning a home with this mortgage. ( Show all work please)

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An increase in cost (fixed cost or variable cost) tends to increase the operating breakeven point, whereas an increase in the sales price per unit will decrease the operating breakeven point. True or false ?

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An increase in the firm’s WACC will decrease projects’ NPVs, which could change the accept/reject decision for any potential project. However, such a change would have no impact on projects’ IRRs. Therefore, the accept/reject decision under the IRR method is independent of the cost of capital.

a. true b. false

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You invested $8,000 in a mutual fund that charges back end fee and 12 b1 fees. Your annual fee is 0.58% and one time back end fee is 5%. You invested in this fund last year and it has grown by 12% in this year. You are redeeming your investment. What is your net return on investment assuming that annual fee is charged on the average value of your investment?

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Mooney Magical Mirror Manufacturing (4M, not to be confused with 3M) presently sells 20,000,000 units per year at a price of $60 per unit with per unit variable costs of $50 per unit. The company%u2019s average collection period is presently 36 days despite offering terms of net 30. It%u2019s bad debt expense is presently 0.5% of annual sales. In an effort to possibly increase sales, but more importantly speed up collection, the firm is considering changing its credit terms to 2/10 net 30. They estimate that sales will only increase by 2% as a result of the change since many of its competitors offer similar credit terms. It does expect, however, that 60% of its total sales will take advantage of the discount and in doing so will reduce the average collection period to 15 days. Furthermore, it is expected that the bad debt ratio will fall to 0.3% of sales. The firm%u2019s cost of capital is 14%. Given this information should Mooney Manufacturing change its credit terms? Explain why supporting your answer with numerical justification.

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An investment will pay $500 in three years, $700 in five yearsa and $1000 in nine years. If your opportunity rate is %6 =, what is the present value of this investment?

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You invested in a mutual fund whose NAV per share increased from $34.50 a share to $36 in a quarter. What is its annual equivalent?

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Maggie wants to open a checkingaccount that will be the least expensive given her normal financial transactions. She typically writes 15 checks a month and uses an ATM 35 times a month. Her minimum checking balances falls to about $350 in an average month. Which of the following accounts would be lease expensive for Maggie? (Show Work please.) Account A: – No monthly fee is charged if a minimum balance of at least $300 is maintained. – A $5.00 fee is charged in any month the minimum balance falls below $300. – An ATM fee of $0.10 per transaction is charged on all transaction Account B: – No monthly fee is charged if a minimum balance of at least $500 is maintained – A $3.00 fee plus $0.10/check is charged in any month the minimum balance falls below $500. – There is no ATM fee on Transaction

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Madison is considering the purchase of 1,000 shares of the preferred stock of Sanger Machine Company. The stock carries a par value of $100 per share and an annual dividend rate of 4.75%. Alternative investments of comparable risk are generating yields of 6.75%. What is the per-share value of Sanger’s preferred stock? Unfortunately, Madison has to postpone her purchase of Sanger’s preferred shares for just over seven months. By the time she is ready to invest, the return on alternative investments of comparable risk has increased. She should expect the cost of her investment in Sanger’s preferred shares to be __________________. (Less Expensive or More Expensive) Please Explain Why. Assume that by the time Madison is ready to make her 1,000-shrae investment in Sanger, the market price of Sanger’s preferred stock has changed to $95.00 per share. If she pays this price to acquire each share of Sanger’s preferred stock, what rate of return would Madison earn on her investment? Remember that the shares have a par value of $100 and a dividend rate of $4.75%.

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Marcy placed $2,400 a year into an investment returning 6 percent a year for her daughter%u2019s college education. She started when her daughter was 3. How much did she accumulate by her daughters 18th birthday? (Round your answer to the nearest whole dollar. Omit the comma and “$” sign in your response.)

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For Hewlett Software Corporation described in problem 9, assume that the yield on the bonds goes up by 1 percentage point and that the tax rate is now 45 percent. a. What is the new aftertax cost of debt? b. Has the aftertax cost of debt gone up or down from problem 9? Explain why.

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A homeowner could take out a 15-year mortgage at a 5.5% annual rate on a $195,000 mortgage amount, or she could finance the purchase with a 30-year mortgage at a 6.1% annual rate. How much total interest over the entire mortgage period could she save by financing her home with the 15-year mortgage (to the nearest dollar)?

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A homeowner can obtain a $150,000 thirty year fixed rate mortgage at a rate of 7.5% with zero points or at a rate of 7.0% with 2 points. How long must the owner stay in the house to make it worthwhile to pay the points if the payment saving is invested monthly? (ignore compounding effects)

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Holding all other factors constant, a firm that is subject to a greater level of business risk should employ less total leverage than an otherwise equivalent firm that is subject to a lesser level of business risk. True or false?

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i WILL APPRECIAT IF YOU COULD ASSIST ME WITH THIS ASSIGNMENT Write a brief overview of your proposed project, including an evaluation of the business strategy currently used by your selected organization (BANK OF AMERICA) and questions that will be necessary to complete a business analysis.

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The major shortcoming of the EBIT-EPS approach to capital structure is that: A) the technique does not consider the cost of capital B) the technique does not promote the maximization of shareholder wealth C)the technique only considers leverage-related risk Which one?

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Howe Industries sells on terms of 2/ 10, net 40. Gross sales last year were $ 4.5 million, and accounts receivable averaged $ 437,500. Half of Howe’s customers paid on Day 10 and took discounts. What is the cost of trade credit to Howe’s non-discount customers? ( Hint: Calculate sales per day based on a 360- day year, get the average receivables of discount customers, and then and the DSO for the non-discount customers.)

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I need a short answer: Stock sold by an insurance company to adjust its portfolio of assests, not to fund its own capital structure, would trade in which market?

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An imaging center has the following information Revenue per test $225 Variable cos per test $150 Total cost per tes $225,000 Estimated number of tests= 3,500 Calculate the total dollar contribution margin dollars and percentagees

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A FI has a long position in $900,000 face value Treasury Bonds. The life of these bonds is 15 years, but the duration is 12.5 years. These bonds generate 10% yield. The current market value of these bonds is $1,050,000. The FI is taking position in the futures market in a similar asset that has face value of $100,000 per contract and currently selling for 98.5% of face value. Duration of the futures contract is 6 years and yield is 6.5%. What will be the net gain/loss from taking a position in the futures market if %u2206R is 1%? $2,767

$3,425

$0

-$3,220.50

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Identify three possible publicly traded organizations for your final project and research each possibility. You are encouraged to choose organizations that are related to your business interests. I chose THE BANK OF AMERICA AS MY ORGANIZATION

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A FI’s average asset duration is 11 years and an average liability duration is 6.5 years. This bank’s assets worth $950 million and equity is $100 million.If R is 10% and the bank is expecting 1% increase in interest rates then by what percentage equity value will change? -25%

-44.8%

-50%

38.50%

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MUST HAVE REFERENCES, PLEASE. will not give five stars without References 1. Identify four research sources that provide context for at least three activities of strategic leaders. At least two of these must be from your own research. 2. Using the resources you have identified, describe specific characteristics of leaders and activities necessary to maintain a high-performance organization

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Refer to the General Motors example on post-retirement benefits. Show the adjustments that would be required to record the full amount of the unfunded post-retirement benefit on December 31, 2004. What factors account for the difference between the adjustments to Common Shareholders%u2019 Equity on December 31, 2004 and 2005?

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An investor purchases one municipal and one corporate bond that pay rates of return of 5% and 6.4% respectively. If the investor were in the 15% tax bracket, his after tax rates of return on the municipal and corporate bond would be respectively_______________?

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An investor starts with $1 million and converts it to 0.75 million pounds, which is then invested for one year. In a year the investor has 0.7795 million pounds, which she then converts to dollars at an exchange rate of 0.72 pounds per dollar. The U.S. dollar annual rate of return earned was _____. 4.97% 5.27% 6.45% 7.69% 8.26%

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Jamil is purchasing a new truck for $30,000. Jamil is making a $2,000 down payment, and he will make 60 monthly payments of $541 each. What are the total finance costs on this loan? ( Please show all work)

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Jamie has taxable income of $45,000. She is single and her tax rates are 10% on the first $7,000 of taxable income, 15% of the amount over $7,000 up to $28,400 of taxable income and 25% on the reaminder. What is Jamie’s tax reliability, her marginal tax rate, and her average tax rate. ( Show all work)

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In a slow year, Deutsche Burgers will produce 4.2 million hamburgers at a total cost of $4.8 million. In a good year, it can produce 5.2 million hamburgers at a total cost of $5.8 million. What are the variable and fixed costs of hamburger production? (Enter your answers in dollars not in millions. Round “Variable cost” to 2 decimal places.) Variable cost per burger fixed cost

Variable cost

$

Fixed cost

$

per burger

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If investors expect the rate of inflation to increase sharply in the future, then we should not be surprised to see an upward-sloping yield curve.

a. true b. false

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A stock%u2019s returns for the past 4 years are 5%, -15%, 8% and 23%. What is the geometric average of the returns?

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The sum of the present values of the future cash flows of a project happens to equal the inital cost of that investment at a required rate of 14%. From this data, what would be the investment’s internal rate of return, its net present value, and its profitability index?

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Suppose that $10 million face value commercial paper with a 270 day maturity is selling for $9.65 million. What is the Discount Yield on the paper?

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What’sUp Industries is unexpectedly having to consider replacing one of its printing presses. If it does so, the press being replaced could be salvaged for $55,000. When the old press was purchased 2 years ago it had a depreciable basis of $500,000 and fell under the MACRS 3 year property class. The new press the firm is considering is state of the art and has a 3 year expected life. It too would fall under the MACRS 3 year property class. The new press would cost $560,000 plus $28,000 to have it shipped and $12,000 to have it installed. The new press is expected to result in considerable cost savings and thus generate a net increase in operating profit excluding depreciation of $450,000 the first year, $325,000 the second year, and $200,000 the third year. After the third year, they expect they would salvage the new press for $65,000. During the new press’ life, What’sUp expects to have to carry an additional $80,000 in working capital. However, upon termination of the project the working capital levels will return to their initial levels. Given the firm’s marginal tax rate is 40%, calculate the ICO, IYICF’s, and TYICF from the expansion.

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Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 3.20% per year. What is the real risk-free rate of return, r*? The cross-product term should be considered, i.e., if averaging is required, use the geometric average.

a. 3.87%

b. 4.06%

c. 4.26%

d. 4.48%

e. 3.68%

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If the reserve requirement for demand deposits is 10 percent, what is the maximum change in the money supply that the banking system can create if a.

the Federal Reserve puts $1,000,000 of new reserves in the banking system

b.

$1,000,000 in cash is deposited in checking accounts

c.

IBM borrows $1,000,000 from an insurance company? Need answers for a,b,and c

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Suppose a bank with $500 million in assets has average asset duration of 4.5 years, and an average liability duration of 7 years. The bank also has a total debt ratio of 90%. R may be thought of as the required return on equity or perhaps as the average interest rate level. If R is 12% and the bank is expecting a 150 basis point increase in interest rates, by how much will the equity value change? -$12,053,571.43

-10,050,217.86

$12,053,571.43

None of the above.

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Your last responds to my questions were well detailed and plz do the same with these and separate your responses 1. Identify four research sources that provide context for at least three activities of strategic leaders. At least two of these must be from your own research. 2. Using the resources you have identified, describe specific characteristics of leaders and activities necessary to maintain a high-performance organization

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The seasonally adjusted data (in billions) for M-1 for the two-month periods from January 2008 through May 2009 are as follows: January

$1368

March

1373

May

1374

July

1400

September

1452

November

1524

January

1576

March

1562

May

1596

During the period September 2008 through May 2009, M-1 experienced a large percentage increase. What subsequently happened to the rate of change in M-1? What is the inflationary implication of the change in M-1? Have consumer prices reacted as you would have anticipated?

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Question 17 1. If the _____________ of a stock is known, an investor can use the security market line to determine the expected return on that stock. Answer standard deviation

beta

coefficient of variation

unsystematic risk

Question 18 1. In comparing the deviations of returns, which one of the following assets has historically had the largest standard deviation of annual returns? Answer large company stocks

long-term corporate bonds

long-term government bonds

U.S. Treasury bills

Question 19 1. The security market line can be used to determine the expected return on a security based on the: Answer market rate of return

slope of the line

systematic risk of that security

risk premium

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1. Question 20 1. The relevant measure of risk for a diversified portfolio of assets is the portfolio%u2019s level of: Answer systematic risk

unsystematic risk

diversifiable risk

company specific risk

Question 21 1. On the income statement, net profit after tax is defined as: Answer operating profit minus operating expenses

operating profit minus cost of goods sold

operating profit minus interest

operating profit minus interest minus taxes

1. QUESTION 22 The current liabilities of a business may include: Answer notes payable

accounts receivable

prepaid expenses

depreciation reserves

Question 23 1. Which of the following business organizations limit the liability of some or all of their owners to the extent of their investment in the company? Answer proprietorships and partnerships

corporations and proprietorships

limited partnerships and proprietorships

corporations and limited partnerships

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Question 2 What is the present value of $100 to be received in 3 years given a 50% discount rate? Answer $21.9

$26.2

$29.6

$55.0

1 points Question 3 What rate of return should an investor expect for a stock that has a beta of 1.0 when the market is expected to yield 10% and Treasury bills offer 2%? Answer 8.0%

10.0%

12.0%

None of the above.

1 points Question 4 What is the IRR of a project with the following cash flows: Year 0: -156, Year 1: 12, Year 2: 130, and Year 3: 140 and Year 4: -19? Answer 20.1%

23.7%

25.2%

26.7%

1 points Question 5 What would you estimate to be the required rate of return for preferred equity if a preferred stock has a constant dividend of $10 per year and sells for $40? Answer 10%

20%

25%

40%

1 points Question 6 An Aaa rated bond should have a higher YTM than a Baa rated bond. True False 1 points Question 7 A sign that a firm is efficient is a: Answer (A) low average collection period.

(B) low day’s sales in inventories.

(C) low asset turnover.

(A) and (B)

(A), (B) and (C)

1 points Question 8 Which of the following is used to reduce agency problems: Answer Fixed salaries

Complimentary meal program

Accounting audits

All of the above

None of the above

1 points Question 9 What is the future value of $10 if it is invested for three years with monthly compounding at a 12% APR? Answer 14.21

14.31

14.92

15.12

1 points Question 10 What is the NPV of a project with the following cash flows and a 9% discount rate: Year 0: -156, Year 1: 12, Year 2: 130, and Year 3: 140 and Year 4: -19? Answer 54

57

59

66

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Question 4 . Pearson Inc. is currently financed by 30% equity (that is 70% debt). Pearson%u2019s operations are marginally profitability and thus it generates a limited of positive cash flows each year (and in some years the cash flows are negative). Pearson would like to expand its operations by purchasing two new spas. Should Pearson finance the new spas by equity, debt pr a combination of debt and equity? Justify your recommendations by discussing the advantages and disadvantages of equity and debt financing. b. Carsom Inc. is financing its new restaurant by borrowing 75% of the cost of the resturant @8%. The rest of the funds will be obtained from its current shareholders who demand 15% rate of return. Compute Carsom weighted average cost of capital if its tax rate is 40%.

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These are the quotes for Face Value = 100,000 kg of Wheat at the time of future contract (Day 0) Settlement Price = $1.50 per kilogram (kg) which is equal to $1.5 * 100,000 = $150,000 total value. The initial margin required is $3,750 The maintenance margin is $1,500 On Day 1, the settlement price is $1.48 per kg. What will be the initial margin of buyer and seller respectively?

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These are the quotes at the time of future contract (Day 0) Settlement Price = 96-12 Face Value = $100,000 The initial margin required is 10% of face value. The maintenance margin is 8% of face value. On Day 1, settlement price is 95-23. What will be the initial margin of buyer and seller respectively?

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Please provide all answers and quickly. Thanks

Find the annual interest rate. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Present Value

Future Value

Time Period

Annual Interest Rate

$

$

113.14

3 years

%

200

254.41

4

%

100

120.50

5

100

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Please provide me with responds to these three questions separately. 1. Identify four research sources that provide the context for at least three characteristics of strategic planning. At least two of these must be from your own research. 2. Using the resources you have identified, describe specific characteristics needed to create an effective strategic plan. 3. Using the resources you have identified, explain the benefits of using strategic planning to help attain organizational and personal goals.

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Quarter Current Assets Fixed Assets I $425,000 $1,315,000 II $365,000 $1,315,000 III $395,000 $1,315,000 IV $205,000 $1,315,000 Woozle Industries has the expected current and fixed asset requirements listed above for each of the next four quarters: Determine the level of long-term permanent funding, the average short term seasonal funding, and the average level of excess funding under an aggressive working capital financing strategy. Determine the level of long-term permanent funding, the average short term seasonal funding, and the average level of excess funding under a conservative working capital financing strategy. Using your answers for (a) and (b), determine total net interest cost for each strategy given that long-term financing carries a cost of 9.5%, short-term debt carries an interest rate of 4.5%, and any excess funds can be invested at a rate of 1.25%.

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Widget Wonders anticipates that is annual cash needs will be $125,000. However, it recognizes that any cash it holds won%u2019t earn any interest and the interest rate on its money market account is 1.95% p.a. Moving funds from the money market account costs $24 per transaction. Given this information determine: Optimal size conversion and optimal number of conversions per year? What is the average level of cash that Widget Wonders holds during the year? Given your answers for (a) and (b), what is the cost to Widget Wonders in maintaining the optimal cash balance?

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Suppose that rRF = 5% and rM = 12%. What is the appropriate required rate of return for a stock that has a beta coefficient equal to 1.5%?

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1) Henry wishes to accumulate $4,500 in 2 years for a long vacation. Find the sinking fund payment he would need to make each month, at 6% compounded monthly.

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1. As the head of Human Resources at Harris Light & Magic Corporation, RenAf©e is determined to increase the wealth of the company. She was approached by Segler Executive Management Retreats, Inc:a company specializing in executive training. Segler is offering, for an upfront payment of $75,000, to design an executive program for Harris’ 15 managers. Once the program is designed, the company’s 15 managers will be scheduled to fly to a retreat in Bermuda to acquire expert knowledge in productivity. It is expected that the program will improve the company’s Magic Division revenues by 1%, or $500,000, each year for five years. However, with all this focus on expanding the Magic revenues, RenAf©e expects the Light Division’s sales to decline by 0.75%, or $175,000, each year. After five years, the acquired knowledge would be obsolete and the revenues for the two product lines would return to previous levels. RenAf©e also believes that a retreat of this nature would reduce Harris’ manager turnover by 1 manager each year. When a manager does not turnover, RenAf©e does not have to run ads at a cost of $4,500 each instance. The cost of flying each manager first-class to the retreat is expected to be $1,500 round trip. Lodging, meals, and incidental expenses are expected to cost $600 per manager per day for the seven day retreat. The company has a tax rate is 31%. Its depreciation method is straight-line. The company paid a dividend to shareholders of $1 per share last year and is expect to do the same over the next five years. Harris Light & Magic Corporation is traded on the New York Stock Exchange and currently has 100,000 outstanding shares, owned by 17,546 shareholders. Variable costs for the Magic and Light divisions are 65% and 30% of sales revenue, respectively. What is the payback for this project? A. 2.73 B. 2.82 C. 3.05 D. 3.21 E. 3.26 F. 4.08 G. 5.2 H. does not payback 2. One year ago, Neal purchased 3,600 shares of Franklin stock for $101,124. Today, he sold those shares for $26.60 a share. What is the total return on this investment if the dividend yield is 1.7 percent? A. -4.21 percent B. -3.60 percent C. -2.29 percent D. 1.10 percent E. 2.42 percent 3. Last year, Rita earned 11.6 percent on her investments while U.S. Treasury bills yielded 3.8 percent and the inflation rate was 3.1 percent. What real rate of return did she earn on her investments last year? A. 4.7 percent B. 8.50 percent C. 8.56 percent D. 9.24 percent E. 10.39 percent 4. Last year, Thomas invested $38,000 in Oil Town stock, $11,000 in long-term government bonds, and $8,000 in U.S. Treasury bills. Over the course of the year, he earned returns of 12.1 percent, 6.3 percent, and 3.9 percent, respectively. What was the nominal risk premium on Oil Town’s stock for the year? A. 1.9 percent B. 4.7 percent C. 5.8 percent D. 7.6 percent E. 8.2 percent 5. Over the past 4 years, large-company stocks and U.S. Treasury bills have produced the returns stated below. During this period, inflation averaged 2.8 percent. Given this information, the average real rate of return on large-company stocks was ___ percent as compared to _____ percent for Treasury bills. A. 6.47; 0.92 B. 6.47; 1.08 C. 8.2; 0.95 D. 7.98; 1.08 E. 11.0; 3.75 6. A bond has an average return of 5.9 percent and a standard deviation of 2.1 percent. What range of returns would you expect to see 68 percent of the time on this security? A. 1.7 percent to 10.1 percent B. 5.9 percent to 10.1 percent C. 3.8 percent to 8.0 percent D. -1.7 percent to 10.1 percent E. -3.8 percent to 8.0 percent 7. A stock has an average return of 18.2 percent and a standard deviation of 10.7 percent. In any one given year, you have a 95 percent chance that you will not lose more than _____ percent nor earn more than ____ percent if you invest in this security. A. -3.2 percent to 28.9 percent B. -3.2 percent to 39.6 percent C. -13.9 percent to 28.9 percent D. -13.9 percent to 39.6 percent E. -13.9 percent to 50.3 percent 8. You purchased 1,300 shares of LKL stock 5 years ago and have earned annual returns of 7.1 percent, 11.2 percent, 3.6 percent, -4.7 percent and 11.8 percent. What is your arithmetic average return? A. 4.47 percent B. 5.80 percent C. 6.23 percent D. 6.47 percent E. 6.98 percent

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1. MSFT 1.1 Boeing 1.02 SBUX .82 MCD .31 Based on the above ticker and betas and the assumption that you own a good diversified portfolio of financial assets decide in the following statement is T or False Selling MSFT and using the proceeds to buy shares of SBUX (starbucks) would lower he risk of your portfolio and lower the porfotlios expected return. True or False 2. Interest rates on 20 year treasury ad corporate bonds are as follows t-bond=7.72%, AAA=8.72%, A=9.64%, BBB=10.18%. What caused the differene in these rates? a. Tax effects b. default risk differences c. maturity risk differences d. inflation differences e. real risk-free rate difference

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1 Price fluctuations in arabic coffe beans influence coffee prices but not the free cash flow of the coffee shop because management’s ability to fully mitigate future price risk through purchasing practices and hedging activitiees True or false 2 If people think that storm risk in NYC is going higher in the future than in the past then the discount rate used to value projects in New York will increase and this will decrease the value of projects based in NYC and this would decrease investment in NYC True or False 3 The value of the Coffee Shop as a company is insulated from foreign exchange risj becasue 99% of the revenues are from sales within the US True or False 4 The effect pof changes to health care laws in the US may increase the number of employees who choose to participate in the heathcare plans offered by the Coffee Shop, which may drastically increasae our healthcare costs and negatively impact our financial reults True or False 5 The management at the Coffee Shop only puts down and describes the systemantic risks that the compnay is exposed to in the 10-K form becasue the other risks are not the responsibility of management Trur or False

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1. Suppose you bought a 6 percent coupon bond one year ago for $890. The bond sells for $915 today.

(a)

Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?

Total dollar return $_____________ (round to 2 decimal places)

(b) What was your total nominal rate of return on this investment over the past year? Nominal rate of return __________ percent (round to 2 decimal places)

(c)

If the inflation rate last year was 12 percent, what was your total real rate of return on this investment? Real rate of return ___________ percent (negative amount should be indicated with a minus sign, round answer to 2 decimal places)

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1. the term structure of interest rates represents the relationship between which of the following? a. Nominal rates on risk free and risky bonds b. Real rates on risk free and risky bonds c. Nominal and Real rates on default free, pure discount bonds d. Market and coupon rates on default free, pure discount bonds e. Nominal rates on default free, pure discount bonds and time maturity

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. If I wanted to measure the systematic risk of an asset, I would calculate its ………. As opposed to this, if I wanted to measure the absolute risk (total risk) of an asset I would calculate its ………………… (Points : 3)

beta, standard deviation standard deviation, beta expected return, CV beta, expected return If the expected dividend on a stock in the coming year is $2.50 (d1), and its constant growth rate is 5%, what would be the cost of internal equity for this firm if the current market price of its stock is $25? You can assume that the company uses the constant growth rate model.

Michaelangelo, Inc., an art firm has debt of $40,000 (market value). The cost of debt for the firm before-tax is 18.33%. The tax rate for the firm is 40%. If the firm also has equity of $60,000 (market value) whose cost is 17%, what would be the firm’s cost of capital assuming that the firm uses only these two sources of financing? (Points : 3) 12.93% 14.6% 16.39% 17%

8. Parker Chemicals purchased a hexene extractor 10 years ago for $120,000. It is being depreciated on a straight-line basis over 15 years to an estimated salvage value of zero. It can be sold today for $10,000. Parker is considering purchasing a new more efficient extractor that would cost $270,000 installed and would be depreciated as a 10-year MACRS asset. The company’s marginal tax rate is 40%. Determine the NINV if the old extractor is sold and the new one is purchased. (Points : 3) $252,000 $228,000 $260,000 $248,000

If I have an initial outlay of $560 on a project and it has cash inflows of $290 per year for three years, would I invest in the project if I had a cost of capital of 13.6%. Assume I use the Internal rate of return method. (Points : 3)

Yes, I would. Calculated IRR exceeds 13.6%. No, I would not. Calculated IRR is lower than cost of capital. The project would not add to the company and therefore I would not invest in it. IRR is not the method but based strictly on payback I would be forced to refuse this project.

If I had a net investment of $40,000 with cash inflows amounting to $20,000 per year for three years (years 1-3) what would be the discounted payback on the project if the cost of capital is 10%? If I had a cutoff of two years in discounted payback, would I accept this project? (Points : 3) 1.35 years; accept 1.95 years; reject 2.35 years; reject exactly 3 years; reject

14. Project OBOL has an inital outlay (NINV and the only cash outlflow) of $2000. If you are given the information that the NPV of the project is 234.96, what would be the Profitability Index for the project ? (Points : 3) 1.11 1.51 1.89 0.89

15. Affirm Timer Zeta, Inc., a pharmacutical firm can raise up to $700 million for investment from a mixture of debt, preferred stock and retained equity. Above $700 million, the firm must issue new common stock. Assuming that debt costs and preferred stock costs remain unchanged, the marginal cost of capital for amounts up to $700 million will be ____ the marginal cost of capital for amounts over $700 million. (Points : 3) less than equal to greater than cannot be determined from the information given

16. What is the internal rate of return for a project that has a net investment of $60,000 and the following net cash flows: Year 1 = $15,000; Year 2 = $20,000; Year 3 = $25,000; Year 4 = $32,000? (Points : 3) 17.08% 16.7% 15.7% 16.3%

17. An investment project requires a net investment of $100,000. The project is expected to generate annual net cash inflows of $28,000 for the next 5 years. The firm’s cost of capital is 12 percent. Determine the internal rate of return for the project (to the nearest tenth of one percent). (Points : 3) 12.0% 12.6% 3.6% 12.38%

18. Enjam Loving, Inc., is considering two mutually exclusive projects. Project A and Project B both have an initial outlay of $500. The cash flows from project A (in dollars) are: 100 in year 1, 200 in year 2, 300 in year 3 and 400 in year 4. Project B pays 400 dollars in year 1, 300 dollars in year 2, 200 dollars in year 3 and 100 dollars in year 4. Loving uses both NPV and Simple payback period criterion for decision making. Assuming a cost of capital of 6%, which project would the company choose? (Points : 3) A B B since A’s NPV is higher A since B’s PBP is lower Neither A nor B

19. A ten year bond has a $1,000 face value and was issued 5 years ago. The bond which matures in 5 years has a 7% annual coupon rate (paid semi-annually in two payments of $35 each). The bond currently sells for $1042.65. What is the after tax cost of debt for this bond if the tax rate for the company is 40%? (Points : 3) About 1.8% About 1.2% 6% 7% 3.6%

20. The stock price of Webliography Inc., a web search engine company is currently $34.25 and the current quarterly dividend is $0.25. Consensus estimates for Webliography indicate a growth rate in earnings of 10% into the foreseeable future. If Webliography plans to sell 1 million shares to raise new capital for expansion, what is the cost of new equity if the issuance costs are 8%? (Hint: You need to calculate annual dividend from the quarterly dividend and use that as D0) (Points : 3) 13.49% 10.87% 13.21% 13.17%

21. If a project has an inital outlay of $560 and cash inflows of $240 per year for three years, what would be its MIRR? Assume a cost of capital of 12%. Would you accept this project? (Points : 3) 12%; No 11.79%; No 13.09%, yes 15.3%, no

22. The risk-adjusted discount rate approach is preferable to the weighted cost of capital approach when (Points : 3) all projects have the same risk characteristics the risk-free rate is known with certainty the projects under consideration have different risk characteristics the firm is unlevered

23. Assuming that all other things being equal, a policy of holding a relatively ____ proportion of the firm’s total assets in the form of current assets will tend to result in a ____ expected profitability or rate of return on the total assets of the firm. (Points : 3) large, higher small, higher constant, higher constant, lower

24. Project Harness has an outlay of $300,000 and cash inflows of -$50,000 in year 1, $100,000 in year 2, $100,000 in year 3, $400,000 in year 4 and $300,000 in year 5. If the cost of capital for Harness is 15%, what is the NPV for the project. (Points : 3) over $300,000 over $200,000 but under $300,000 approximately $118,567 under $100,000

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1) Tim deposits $10 every month into a retirement account which averages 18% interest compounded monthly. How much will be in this account after 45 years? (The number of years from age 20 to 65)

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a. What is meant by the investor%u2019s required rate of return? b. How do we measure the riskiness of an asset? c. How should the proposed measurement of risk be interpreted?

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. Use the following data from a firm’s pro forma (i.e., projected or forecasted) financial statements to calculate the following profitability ratios for the firm, assuming that all stocks are common stocks: (a) net profit margin; (b) return on total assets; (c) return on equity; (d) price-earnings ratio. Sales $ 500 million Net income 30 million Total Assets 1000 million Stockholders’ Equity 750 million Number of Common Stock Shares 10 million Price per share of common stock $75.00

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(1)A company is considering a new 3-year expansion project that requires an initial fixed asset investment of $4,698,000. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $4,176,000 in annual sales, with costs of $1,670,400. The tax rate is 34 percent and the required return is 12 percent, the NPV for this project would be $____________. (round answer to 2 decimal places)

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Windsor Companies has generated the following list of independent projects. Given the firm%u2019s 18% cost of capital all of the projects are acceptable. Unfortunately, the cost to undertake them all would exceed the company%u2019s $500,000 budget. Given this dilemma, which combination of projects should Windsor undertake? Justify your answer. Project ICO NPV IRR PI A $250,000 $160,000 21.2% 1.640 B $225,000 $150,000 19.6% 1.667 C $200,000 $45,000 18.7% 1.225 D $175,000 $110,000 22.9% 1.629 E $150,000 $135,000 19.1% 1.900 F $125,000 $70,000 24.8% 1.560 G $100,000 $85,000 20.2% 1.850 H $75,000 $40,000 26.4% 1.533 I $50,000 $25,000 21.2% 1.500 J $25,000 $20,000 23.7% 1.800

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You wish to invest $17,445 in a mutual fund with a NAV of $26.03. The fund charges a front-end load of 4.50%. How many fund shares will you receive?

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X-Centric Energy Company has issued perpetual preferred stock with a stated (par) value of $100 and a dividend of 3.0 percent. If the required rate of return is 9.50 percent, what is the stock’s current market price? (Round answer to 2 decimal places, e.g. 15.25.)

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XYZ Bank has $100 million of floating rate loans yielding the T-bills rate plus 4 percent. These loans are financed by $100 million of fixed-rate deposits costing 5 percent. ABC Bank has $100 million of mortgages with a fixed rate of 13 percent. They are financed by $100 million of CDs with a variable rate of T-bills plus 5 percent. If the SWAP is feasible then what would be the combined (total) spread this SWAP will generate? If the SWAP is feasible then what would be the SWAP benefits XYZ Bank will get from ABC Bank if XYZ gives all its ROA to ABC Bank and both banks split the combined spread evenly? 10.5%

9.5%

8.5%

7%

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XYZ Bank wishes to take a short position in Treasury bond futures contracts, which currently have a quote of 110 ? 20. The face value of the bond underlying the futures contract is $100,000. Estimate total net profit and loss at the end of third day at the following specified daily prices? Day 1 111-00 Day 2 110-30 Day 3 111-10 $1,000 None of the above. $375 -$687.50

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Susmel Inc. is considering a project that has the following cash flow data. What is the project’s payback? Year 0 1 2 3 Cash flows -$500 $150 $200 $300

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A Swiss bank converted 1 million Swiss francs to euros to make a euro loan to a customer when the exchange rate was 1.85 francs per euro. The borrower agreed to repay the principle plus 3.75% interest in 1 year. The borrower repaid euros at loan maturity and when the loan was repaid the exchange rate was 1.98 francs per dollar. What was the bank’s franc rate of return? -2.82% 9.94% 5.71% 7.75% 11.04%

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A T-Bond with a $1000 par is a TIPS. Assume it offers annual coupon payments with a coupon rate of 5% APR and 5 years of maturity. If the inflation between the issuing date and the 1st coupon date is 1% then the 1st coupon payment would be:

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Suppose Walker Publishing Company is considering bringing out a new finance text whose projected revenues include some revenues that will be taken away from another of Walker’s books. The lost sales on the older book are a sunk cost and as such should not be considered in the analysis for the new book.

a. true b. false

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You have taken a job as an entry-level analyst, and your boss has asked you to find the expected value of Pandar Corp’s stock. As you were doing your research, you found out that Pandar Corp just paid a dividened (Do) of $3.75. The firm has experienced consistent growth of 5% for the last couple of years, and you belive that the firm will continue to grow at the same rate in the future. 1. If investors require a return of 10% on Pander Corp’s stock, what is the expected value of the company’s stock? 2. What would be the change in the expected value of Pander Corp’s stock if investors required a return of 12% on the company’s stock?

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Taco Loco%u2019s stock has a beta of 1.2. The current t-bill yield (risk-free rate,Rf) is 5.5% and the expected return on the market portfolio (Rm) is 11.5%. The company%u2019s preferred stock pays an $8.50 per share dividend each year and the price of it is $88 per share. The yield to maturity of Taco Loco%u2019s bonds is currently 9.7%. If Blue Thumb is in the 30% tax bracket, what is the company%u2019s WACC?

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The Target Copy Company is contemplating the replacement of its old printing machine with a new model costing $ 43 ,000. The old machine, which originally cost $ 31 ,000, has 5 years of expected life remaining and a current book value of $ 15 ,000 versus a current market value of $ 24 ,000. Target’s corporate tax rate is 32 percent. If Target sells the old machine at market value, what is the initial after-tax outlay for the new printing machine? Since this is a cash outlay, be sure to use the – sign when writing your answer.

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Other things held constant, which of the following would increase the NPV of a project being considered?

a. An increase in the discount rate associated with the project.

b. A shift from straight-line to MACRS depreciation.

c. The project would decrease sales of another product line.

d. Making the initial investment in the first year rather than spreading it over the first three years.

e. An increase in required net operating working capital.

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Trades between large institutional investors that take place without the benefits of brokers or dealers occur in the: Answer primary market

secondary market

third market

fourth market

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Thomas Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 30 percent. The company expects to use the equipment for 5 years, with no expected salvage value. The purchase price is $1 million and MACRS depreciation, 3-year class, will apply. If the company enters into a 5-year lease, the lease payment is $230,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 11 percent. a. Calculate the cost of purchasing the equipment. Cost of equipment

$1,000,000

MACRS depreciation

0.33

0.45

0.15

0.07

5-year lease Lease payment -BGN year

$230,000

Loan

11%

Tax rate

30%

After-tax rate

7.70%

b. Calculate the cost of leasing the equipment. C. Calculate the net advantage to leasing. Should the company purchase or lease the equipment.

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A treasury bond is selling as a STRIP. The par value is $10,000, maturity is 15 year and the annual coupon is 6%. The YTM on this bond is 8%. What will be your total cost today if you buy 10th coupon and the face value strips?

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Webster industiral poroducts just signed a sales contract with a new customer. What is this contract worth as of the end of year 4 if the following payments will be received and the firm earns 5 percent on its savings? End of year Payment Amount 1 $84000 2 $113,000 3 $125,000 4 $130,000 Please show work!

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Suppose you purchase a 10-year AAA-rated Swiss bond for par that is paying an annual coupon of 7 percent and has a face value of 2,000 Swiss francs (SF). The spot rate is U.S. $0.66667 for SF1. At the end of the year, the bond is downgraded to AA and the yield increases to 9 percent. In addition, the SF depreciates to U.S. $0.74074 for SF1.

a.

What is the loss or gain to a Swiss investor who holds this bond for a year? (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

(Click to select)

%

Loss Gain to Swiss investor

b.

What is the loss or gain to a U.S. investor who holds this bond for a year? (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

(Click to select)

%

Loss Gain to U.S. investor

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Principal

$1,000

Maturity date

20 years

Interest

$80 (8% coupon) paid yearly

Call price

$1,050

Exercise price

$65 a share

a.The bond may be converted into how many shares? b.If comparable non-convertible debt offered an annual yield of 12 percent, what would be the value of this bond as debt? c.If the stock were selling for $52, what is the value of the bond in terms of stock? d.Would you expect the bond to sell for its value as debt (i.e., the value determined in b) if the price of the stock were $52? e.If the price of the bond were $960, what are the premiums paid over the bond’s value as stock and its value as debt? f.If the price of the stock were $35, what would be the minimum price of the bond? g.What is the probability that the bond will be called when the price of the stock is $52? h.If the price of the stock rose to $73, what would happen to the price of the bond? If the price of the stock were $73, what would the investor receive if the bond were called?

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Since the primary rationale for any operating merger is synergy, in planning such mergers the development of accurate pro forma cash flows is the single most important task.

a. true b. false

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Warr Company is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s projected IRR can be less than the WACC or negative, in both cases it will be rejected. Year

0

1

2

3

4

Cash flows

%u2212$1,050

$400

$400

$400

$400

a. 21.20%

b. 19.27%

c. 14.05%

d. 15.61%

e. 17.34%

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The currect market price of a bond is the total of the PV of (1) the par value of the bond and (2) the income stream of interest payments. For a $1,000 par bond maturing in 10 years with a coupon rate of 5% making annual interest payments and a market yield of 5%, calculate the PV’s of (1) and (2). Please show work in neither financial calculator or excel.

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Burger King has experienced supernormal growth of 20 percent that should continue for the next 2 years. Growth will then be 15 percent in the 3rd year and 10 percent from then on. The last dividend paid was $0.75 per share and your required return is assumed to be 15 percent. According to the dividend model how much would you be willing to pay for the company? A) $3.20 B) $18.03 C) $29.73 D) $20.38

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BMI is considering a project that has a cost of $33,578.17 and it’s expected net cash inflows are $12,000 per year for 4 years. What is the project’s IRR? a) 10% b) 13% c) 16% d) 18%

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University Banks average asset duration is 6 years and average liability duration is 10 years. Suppose the size of its assets is $1,000 million and its liabilities are $950 million. If R is 12% and the bank is expecting a 150 basis point decrease in interest rates, how many T-bond futures contracts are required to fully hedge the equity value if the Treasury bond futures are selling for 94.5% of $100,000 face value with duration of 4.50 years? How many contracts are needed to offset risk on the balance sheet? Short (sell) 8,230 contracts

Long (buy) 8,230 contracts

Short (sell) 4,250 contracts

None

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The Blue Plate has 43,000 shares of stock outstanding. Company sales for the year are $2.2 million and the profit margin is 4.8 percent. What is the current value of the stock if the price-earnings ratio is 8.4? $20.63 $22.20 $25.15 $25.97

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Describe a business practice that would help a company manage each of the following financial risks: (a) interest rate risk; (b) liquidity risk; and (c) credit risk.

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Bonds issued by the Tyler Food Corporation have a par value of 1,000 they are selling for 1390 and have 20 years remaining to maturity. The annual intrest payment is 13.5 % (135) Compute approximate yield to maturity? (round answer to two decimal places)

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1. Currently, Sand Stone Gems has a return of 15.6 percent for the year and has an average return for the past ten years of 12.1 percent. Meanwhile, Deep Creek Mines has a return of 6.7 percent for the year and an average return for the past ten years of 9.1 percent. Given this, you can assume that the: a

standard deviation of the returns on Deep Creek Mines is negative.

b

covariance of the returns on these two stocks is negative

c

covariance of the returns on these two stocks is zero.

d

correlation of the returns on these two stocks is zero.

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Can someone please briefly interpret a and b: Problem-solving: Calculate the break-even point (Q), for a firm whose: (a) total fixed cost (TFC) = $100,000, product price per unit of output (P) = $10.00, and average variable cost (AVC) = $7.50. (b) TFC = $600,000, P = $15,000, and AVC = $12,000. a) Break Even Point %u2013 P x Q= F + (VxQ) $10 * Q= $100,000 + ($7.50 * Q) ($10- $7.50) * Q= $100,000 2.5 * Q= $100,000 Q=$40,000 b) Break Even Point %u2013 P x Q= F + (VxQ) $15,000 * Q = $600,000 + ($12,000 * Q) ($15,000 %u2013$12,000) * Q= $600,000 3,000 * Q= $600,000 Q= 200

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Bucher Credit Bank is offering 6.7 percent compounded daily on its savings accounts. Assume that you deposit $6400 today. How much will you have in the account in 4 yeats? How much will you have in the account in 8 years? How much will you have in the account in 16 years?

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(Briefly) Explain why classified stock might be used by a corporation and what founders shares are.

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You buy a new piece of equipment for 23997 you recieve a cash inflow of 3200 a year per year for 11 years you need to use a chart/ What is the internal rate of return? (Show work please) round pf factor to 3 decimals. round answer to whole percent

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Calculating a range, which asset is more risky? Asset A Asset B A 14% 16% B 20% 20% C 25% 25% SHOW ALL MATH WORK!!!

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Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,187,932. have a life of five years, and would produce the cash flows shown in the following table. YEAR

CASH FLOW

1

$448,536

2

-252,003

3

643,094

4

1,067,687

5

644,157

What is the NPV if the discount rate is 15.10 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)

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A U.S. bank converted $1 million to Swiss francs to make a Swiss franc loan to a valued corporate customer when the exchange rate was 1.2 francs per dollar. The borrower agreed to repay the principle plus 5% interest in 1 year. The borrower repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate was 1.3 francs per dollar. What was the bank’s dollar rate of return?

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Assume the following: Degree of Operating Leverage (DOL) = 2.4 Degee of Financial Leverage (DFL) = 1.25 Degree of Total Leverage (DTL) = 3 Everything else remaining constant, assume the company decides to immediately repay 50% of a bank loan prior to its maturity. How would this affect its DOL. DFL adn DTL? Please explain why. The DOL would be expected to: (increase, decrease, or remain constant) ? The DFL would be expected to: (increase, decrease, or remain constant) ? The DTL would be expected to: (increase, decrease, or remaint constant) ?

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Assume that the market mechanism for shares in the Geurts Company works very well. Now suppose that the risk of the Geurts Company changes favorable, thus it is lowered. Describe step-by-step what happens to its stock price and why. Also discuss what happens to the returns for both a current owner of shares in the Geurts Company and a prospective owner, thus potential buyer, of shares in the Geurts Company.

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Assume purchasing power parity holds and a Big Mac sells for $3.45 in the US and Kronur $127.33 in Iceland. What is the Kronur/$ exchange rate?

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Assume the following information: U.S. investors have $1,000,000 to invest 1-year deposit rate offered on U.S. dollars = 12% 1-year deposit rate offered on Singapore dollars= 10% 1-year forward rate of Singapore dollars = $0.412 Spot rate of Singapore dollar = $0.400 Should a U.S. based investor Covered interest arbitrage and invest in Singapore? Answer Yes because the return would be 14.23%

No because the return would be 14.23%

Yes because the return would be 13.3%

No because the return would be 13.3%

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Barbara is considering investing in a stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Using the table of returns and probabilities below, find Probability

Return

Boom

0.5

25.00%

Good

0.2

15.00%

Level

0.2

10.00%

Slump

0.1

-5.00%

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BDJ Co. wants to issue new 21 year bonds for some much needed expansion projects. The company currently has 9.6 percent coupon bonds on the market that sell for $1,136, make semiannual payments, and mature in 21 years. What coupon rate should the company set on its neww bonds if it wants them to sell at par. Round to 2 decimals. Show work please.

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At the beginning of the year, a firm has current assets of 391 and current liabilities of 298. At the end of the year, the current assets were 435 and the current liabilities were 338. what is the change in net working capital?

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The Jackson-Timberlake Wardrobe Co. just paid adividend of $1.95 per share on its stock. The dividends areexpected to grow at a constant rate of 6 percent per yearindefinitely. If investors require an 11 percent return on TheJackson-Timberlake Wardrobe Co. stock, the current price is $________. The price will be $ ________ in 3 yearsand $ ________ in 15 years. (Do not include the dollarsigns ($). Round your answers to 2 decimal places. (e.g.,32.16))

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All else equal, the contribution margin must increase as: A. Both Sales price and variable cost per unit increase. B. The fixed cost per unit declines C. The variable cost per unit declines D. Sales price unit declines E. The sales price minus the fixed cost per unit increases. Which one of the following are correct. I think that the answer is A but not certain.

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You expect to renovate a building you will pay $760,000 for and will lease it out for 20 years, after which time you estimate you can sell the building for $250,000. You expect the lease to pay you $110,000 per year. Finally, the cost of capital in this case is 13%. What is the value of the building in today%u2019s dollars when you sell it? I need the full formula/equation used. Thanks

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We are evaluating a project that costs $822,000, has an fifteen-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 82,000 units per year. Price per unit is $43, variable cost per unit is $21, and fixed costs are $828,576 per year. The tax rate is 34 percent, and we require a 14 percent return on this project. The accounting break-even point is 40,154 units. The base-case flow is $662,411.84 and NPV is $3,246,644.00. The sensitivity of NPV to changes in the sales figure is $ _______ (round to 3 decimal places). If there is a 500-unit decrease in projected sales, we would expect the NPV to change by $ __________ (negative amount should be indicated by a minus sign, round to 2 decimal places)

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Answer Answer $1,196

$1,084

$1,312

$1,208 s

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The Chicken Company, a company with headquarters in Switzerland, has a receivable of one million euro, which it will receive in one year. Chicken can borrow euro at an annual rate of 10%, can borrow Swiss francs at an annual rate of 9%, and can borrow dollars at an annual rate of 11%. 1. To complete the spot transaction hedge, Chicken must first borrow what currency? 2. How much of that currency will Chicken borrow? 3. What currency will Chicken buy? Explain answer to part a and show calculations for part b

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Alpha, Inc. is expecting to issue new debt at par with a coupon rate of 6%, and to issue new preferred stock with a $2.00 per share dividend at $20 a share. Common stock is currently selling for $25 a share. Alpha expects to pay a dividend of $2.50 per share next year, and a market analysis indicates dividends will grow at a rate of 3% per year. The marginal tax rate is 40%. A) What is the cost of debt, cost of preferred stock and cost of common stock? B) If Alpha raises capital using a capital structure of 40% debt, 10% preferred stock and 50% common stock, what is the cost of capital for Alpha, Inc.? SHOW ALL MATH WORK!!!

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Comapny considering a more liberal credit policy to increase sales but expects that 8% of the new account will be uncollected.Collections cost are 6% of new sales production and selling cost are 79% accounts reciev. turnover is four times Income tax of 35% increase in sales of 70,000 no other assest buildup required. a- what are the level of accounts recievable needed to support the this sales expansion b- What would be the incremental aftertax return on income? c- Assume he also needs to increase level of inventory to support the 70,000 in sales should they give more liberal credit?

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A company is cosidering a new 3-year expansion project that requires an initial fixed asset investment of $1.782 million. the fixed asset falls into the 3-year MACRS (MACRS Table) and will have a market value of $138,600 after 3 years. The project requires an initial investment in net working capital of $198,000. The project is estimated to generate $1,584,000 in annual sales, with costs of $633,600. The tax rate is 34 percent and the required return on the project is 13 percent. The net cash flow in Year 0 is $________; the net cash flow in Year 1 is $829,203.80; the net cash flow for Year 2 is $896,577.66 and the net cash flow in Year 3 is $___________. The NPV for this project is $____________. (round answers to 2 decimal places)

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Chip%u2019s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 91 percent as high if the price is raised 10 percent. Chip%u2019s variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm%u2019s FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275 At $20 per bottle the Chip%u2019s FCF is $41,000 and at the new price Chip%u2019s FCF is $47,660 I got the second answer right but the first one 41,000 keeps coming up wrong. Can anyone see what they would get for the first one ?

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Consider the following cash flows of two mutually exclusive projects. YEAR PROJECT A PROJECT B 0 $-266,750 $-32,678 1 29,900 13,339 2 59,000 12,828 3 58,000 11,633 4 385,000 9,281 Whichever project you choose, if any, you require a 15 percent return on your investment. The payback period for Project A is ???? and for Project B ???? (round to 2 decimal places) The NPV for Project A is $ ???? for Project b $ ????? (round to 2 decimal places) The IRR for Project A is ????? % for Project B ?????? % (round to 2 decimal places) Based on your answers which Project will you choose?

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Consider the following information and then calculate the required rate of return for the Scientific Investment Fund. The funds’ assets are as follows: Stock Investment Beta A $200,000 1.50 B $300,000 -0.50 C $500,000 1.25 D $1,000,000 0.75 The market required rate of return is 15 percent and the risk-free rate is 7 percent. Calculate the required rate of return for the Scientific Investment Fund. PLEASE SHOW ALL WORK THANKS!!!!

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A company has a debt-equity ratio of 0.77. Return on assets is 10.8 percent, and total equity is $642,000. I know the equity multiplier is 1.77, what is the return on equtiy and net income?

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If a company’s weighted average cost of capital is less than the required return on equity, then the firm:

Has debt in its capital structure

Must have preferred stock in its capital structure

Is financed with more than 50% debt

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The common stock of Omega Corp is selling for $50 per share. It is expected that Omega will pay a dividend of $5 per share this year. In addition, analysts have indicated that the company has been growing at a constant rate of 3%, and the growth is expected to continue forever. What is Omega’s cost of Retained Earning? Please show work to be rated.

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Company A is interested in acquiring Company B. Estimated present value of Company B is $100 million. Company B has 5 million shares of stock outstanding and no debt. Company B’s book value is $22.50. What is the maximum price per share that Company A should offer? $16.25

$22.50

$20.00

$25.25

none of the above

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A company has net income of $204,100, a profit margin of 8.6 percent, and an accounts receivable balance of $163,400. Assuming 85 percent of sales are on credit, what is the company’s days’ sales in receivables? (Round answer to 2 decimal places).

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A company has bonds on the market with 15 years to maturity, a YTM of 12 percent, and a current price of $752.23. The bonds make semiannual payments. The coupon rate on these bonds must be __________ percent. (Round answer to 2 decimal places).

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Analysts of the ICM Corporation have indicated that the company is expected to grow at a 5 percent rate for as long as it is in business. Currently ICM’s stock is selling for $70 per share. The most recent dividend paid by the company was $5.60 per share. If ICM issues new common stock, it will incur flotation costs equal to 7 percent. ICM’s marginal tax rate is 35 percent. What is its cost of retained earnings:that is, its retained earnings (internal equity)? What is ICM’s cost of new equity?

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PLEASE ANSWER ALL 6 QUESTIONS FOR ALL THE POINTS. THANKS!!!! PROBLEMS 1 THROUGH 6 USE THE SAME INFORMATION, AS FOLLOWS: A project has an initial cost of $67,450, expected cash flows of $15,300 per year for 8 years, and a cost of capital of 11.5%. See the timeline PV

FV

0

1

2

3

4

5

6

7

8

(67,450)

15,300

15,300

15,300

15,300

15,300

15,300

15,300

15,300

PROBLEM 1: What is the project’s NPV? Show your work below and round your answer to the nearest cent. PROBLEM 2: What is the project’s IRR? Show your work below and round your answer to 2 decimal places, i.e., XX.XX%, 12.34%. PROBLEM 3: What is the project’s MIRR? Show your work below and round your answer to 2 deimal places, i.e., XX.X%, 12.34%. PROBLEM 4: What is the project’s PI? Show your work below and round your answer to 2 decimal places, i.e., XX.XX 12.34 PROBLEM 5: What is the project’s payback period? Show your work below and round your answer to 2 decimal places, i.e., XX.XX, 12.34 Years. PROBLEM 6: What is the project’s discounted payback period? Show your work below and round your answer to 2 decimal places, i.e., XX.XX, 12.34 Years. Period

Annual Cash Flows

Discounted Cash Flows

Cumulative

0 1 2 3 4 5 6 7 8

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The following is the excel problem for Fin 3320 Summer 2013. Fill in all the blanks of the financial statements and the proforma, including the option at the bottom of the page. Also fill in the blanks for the three questions re debt increase, net income and dividends paid. Turn in hard copy (do not email to me) once complete. The excel problem is due July 31, 2013.

Chapter 4 – Section 2 A Simple Financial Planning Model A financial plan begins with the current financial statements. The income statement and balance sheet for Computerfield Corporation are: ALPHA/BETA CORPORATION

ALPHA/BETA CORPORATION

Income Statement

Balance Sheet

Sales

$ 1,000

Costs

800

Assets

Net income

$ 500

Total

Debt

$ 250

Equity

250

Total

To find the funds the company will need to raise next year to funds its sales gorwth, we begin with the forecasted sales growth. In this case, we will assume that the sales growth for the next year will be: Sales growth:

25%

If sales grow, by this amount, we can construct the pro forma, or projected financial statements. Under the assumption that all of the variables will grow by the sales growth rate, the pro forma statements will be: ALPHA/BETA CORPORATION

ALPHA/BETA CORPORATION

Pro forma Income Statement

Pro forma Balance Sheet

Sales

Assets

Debt

Costs

Equity

Net income

Total

Total

The advantage of financial planning is that it allows us to see what could happen in the future and the options available. For example, in this case the following must have occurred: Debt increased by: Net income was: So, dividends paid must have been: Of course, that is not the only option available to Alpha/Beta. The company could also keep all of the net income as retained earnings. If this happens, the company will need to repurchase debt in order to keep the balance sheet in balance. The proforma balance sheet under this scenario will be: ALPHA/BETA CORPORATION Pro forma Balance Sheet Assets

Debt Equity

Total

Total

Remember, the purpose of financial planning is not to tell us what to do, but rather allow us to see what might happen and plan for any contingencies.

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The following information pertains to the common equity of Funtastic Furniture Co: Current selling price – $68.00 Constant growth rate – 8.0% Most recently paid dividend – $3.50 Flotation costs – 10% Marginal tax rate – 40% What is the company’s cost of retained earnings and what is the company’s cost of new common stock? Please show work to be rated.

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The following information should be used for questions #3 through #5: Galaxy Interiors 2011 Income Statement ($ in millions) Net sales $21,415 Cost of goods sold 16,408 Depreciation 1,611 Earnings before interest and taxes 3,396 Interest paid 1,282 Taxable Income $ 2,114 Less: Taxes 740 Net income $ 1,374 Galaxy Interiors 2010 and 2011 Balance Sheets 2010 2011 2010 2011 Cash $ 668 $ 297 Accounts payable $1,694 $ 1,532 Accounts receivable 1,611 1,527 Notes payable 2,500 0 Inventory 3,848 2,947 Total $4,194 $ 1,532 Total $ 6,127 $ 4,771 Long-term debt 9,800 10,650 Net fixed assets 17,489 17,107 Common stock 7,500 7,000 Retained earnings 2,122 2,696 Total assets $23,616 $21,878 Total liab. & equity $23,616 $21,878 1) What is the operating cash flow for 2011? A. $2,114 B. $2,985 C. $3,536 D. $4,267 2) What is the cash flow from assets for 2011? A. $1,732 B. $2,247 C. $2,961 D. $3,915 3) What is the cash flow to stockholders for 2011? A. -$500 B. -$800 C. $500 D. $1,300

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The following information applies to Cyber Soda: Prob return 0.2 2.0% 0.3 12.0% 0.5 5.0% calculate the stand deviation and coefficient of variation. please show all work.

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If the following two projects are mutually exclusive, and the rate of return is 10%, which project should be purchased? Please show work to be rated. year projectQ projectR 0 $(4,000) $(4,000) 1 $0 $3,500 2 $5,000 $1,100

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Which of the following factors should Davis Company include in its CAPITAL BUDGETING ANALYSIS? Check ALL the APPLY. (Why or Why Not) 1. Davis Company’s annual interest rate expense will increase from $2 million to $3 million, due to the debt raised to finance this project. 2. Davis Company’s addition of three new products to its product line requires an inventory increase of $55,000 per year. 3. If the current project is accepted, Davis Company will be forced to sell one of its exisitng divisions in order to satisfy anti-monopoly requirements. 4. Davis Company’s annual preferred stock dividends will increase from $200,000 to $250,000, due to the additional shares sold to finance the project.

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The following relationships exist for Dellva Industries, a manufacturer of electronic components. Each unit of output it sold for $45; the fixed costs are $175,000, of which $110,000 is annual depreciation charges; and variable costs are $20 per unit. 1. What is Dellva’s operating break-even point? 2. What would happen to the operating breakeven point if Dellva raises the product selling price to $50, which will cause the variable cost per unit to rise to $22.

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A firm has net working captial of $349, net fixed assets of $2,389, sales of $6,000, and current liabilites of $8,000. How many dollars worth of sales are generated from every $1 in total assets?

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A firm pays 12.80 dividend at the end of year one. has a stock price of 111 constant growth rate of 5%. Compute the rewuired rate of return. Please show work. Not just the formulas an explanation please.

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Firms that achieve higher growth rates without seeking external financing have less equity and/or are able to generate high net income leading to a high ROE.

are not highly leveraged.

all of these are true.

have a high plowback ratio.

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A firm is reviewing a project that has an initial cost of $71,000. The project will produce annual cash inflows, starting with year 1, of $8,000, $13,400, $18,600, $33,100 and finally in year five, $37,900. What is the profitability index if the discount rate is 11 percent?

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Fairchild Garden Supply expects $500 million of sales this year, and it forecasts a 18% increase for next year. The CFO uses this equation to forecast inventory requirements at different levels of sales: Inventories = $22.8 + 0.20 X (Sales). All dollars are in millions. What is the forecasted inventory for the coming year? What is the projected inventory turnover ratio for the coming year? Clearly identify your answer: The forecasted inventory for the coming year is ______. The projected inventory turnover ratio for the coming year is ______. Round your answers to 2 decimal places. $X,XXX.XX (inventory) and X.XX (turnover). Please Show your work

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In each of the following cases, find the unknown variable: (round answers to 2 decimal places) ACCOUNTING UNIT VARIABLE BREAKEVEN UNIT PRICE COST FIXED COSTS DEPRECIATION 1. 105,200 $47 $21 $867,000 ___________ 2. 128,000 ______ 46 3,400,000 $850,000 3. 6,608 115 ______ 193,000 100,000

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Fero Co. has outstanding 5-year noncallable bonds with a face value of $1,000. These bonds have a current market price of $1,050.76 and an annual coupon rate of 10%. The company faces a tax rate of 30%. If the company wants to issue new debt, what would be a reasonable estimate for its after-tax cost? Please show your work.

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A firm has an inventory turnover rate of 16, a receivables turnover rate of 21 and a payables turnover rate of 11. How long is the operating cycle?

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For each of the following annuities, calculate the annual cash flow. (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g.,32.16).) Cash Flow

Future Value

$

$

Interest Rate

Years

24,550

9

%

8

$

1,000,000

11

40

$

820,000

12

26

$

136,000

8

17

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A company has 9.3 percent coupon bonds on the market with 13 years to maturity. The bonds make semiannual payments and currently sell for 90.291 percent of par. The current yield on the bonds is ____________ percent, the YTM is _________ percent, and the effective annual yield is _________ percent. (Round answer to 2 decimal places).

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A firm is evaluating and investment that costs $90,000 and is expected to generate annual cash flows equal to $20,000 for the next 6 years. If the firm’s required rate of return is 10%, what is the net present value (NPV) of the project? What is the internal rate of return (IRR)? Should the project be purchased? (Yes or No)

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The firm expects to retain $160,000 in earnings this year to invest in capital budgeting projects. If the firm’s capital budget is expected to equal $190,000, what required rate of return, or marginal cost of capital, should be used when evaluating capital budgeting projects? What is the WACC if the capital budget is expected to be $220,000?

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The expected return for the general market (rMKT) is 12.8 percent, and the market risk premium (i.e., RPM) is 4.3 percent. Moe, Larry, and Curley have betas of 0.82, 0.57, and 0.68, respectively. What are the required rates of return for the three securities?

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Explain how it could help a firm to: (a) buy back some of its common stock; (b) increase its use of internal financing relative to external financing; (c) replace some equity financing with debt financing; (d) take a public firm private; and (e) pay down some of the firm’s debt?

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explain Synergy in the context of Mergers and Acquisitions

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Explain the reasons for investing in international stocks and identify the “bets” an investor is making when he does invest overseas

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Durham Cement, Inc. buys on terms of 2/15, net 30 days. It does not take discounts, and it typically pays 60 days after the invoice date. Net purchases amount to $720,000 per year. What is the nominal annual cost of its non-free trade credit? (Assume a 365-day year.) Clearly identify your answer: The nominal annual cost of its non-free trade is ______. Round your answers to 2 decimal places. XX.XX % Show your work.

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In an efficient market if investment A has a standard deviation of 6.25 % and Investment B has a standard deviation of 9.75% we Know what about these 2 investments?

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A Diehard corporation’s common stock has a beta of 1.50. If the risk-free rate is 5.00 percent and the expected return on the market is 13 percent, what is Diehards’ cost of equity capital? (round to 2 decimal places)

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Discounted payback: Roswell Energy Company is installing new equipment at a cost of $10 million. Expected cash flows from this project over the next five years will be $1,045,000, $2,550,000, $4,125,000, $6,326,750, and $7,000,000. The company%u2019s discount rate for such projects is 14 percent. What is the project%u2019s discounted payback period? Please show procedure, thank you

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The next dividend payment by Mosby, Inc., will be $2.55 per share. The dividends are anticipated to maintain a 6.00 percent growth rate, forever. Assume the stock currently sells for $48.70 per share.

Requirement 1: What is the dividend yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

Dividend yield

%

Requirement 2: What is the expected capital gains yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

Capital gains yield

%

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DAA%u2019s stock is currently selling for $18.10 per share. The firm%u2019s income, assets, and stock price have been growing at an annual rate of 25 percent and are expected to grow at this rate for 3 more years. No dividends have been declared as yet, but the firm intends to declare a dividend of $2.00 at the end of the last year of its period of supernormal growth (so that D 3 = $2.00). After that, dividends are expected to grow at the firm%u2019s normal growth rate of 8 percent. The firm%u2019s required rate of return (r(s)), is 18 percent. What is the expected, or intrinsic, value of this stock today? *This was answered, but I’m very curious to see the process of solving.

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What would be the degree of financial leverage of Steel Works Corp, if EBIT equals $20,000, interest expense equals $10,000, the marginal tax rate equals 40% and net income $6,000? Please show work to be rated.

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Define preferred stock, determine the value of a share of preferred stock, or given its value, calculate its expected return.

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The next dividend payment by Mosby, Inc. will be $2.60 per share. The dividend are anticipated to maintain a 6.25 percent growth rate, forecer. Assume the stock currently sell for $48.80 per share. What is the dividend yield. Round to 2 decimals. What is the expected capital gains yields? Round to two decimal. Please show work.

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Determine the IRR on the following projects: a. Initial outlay of $35,000 with an after-tax cash flow at the end of the year of $5,836 for seven years b. Initial outlay of $350,000 with an after-tax cash flow at the end of the year of $70,000 for seven years c. Initial outlay of $3,500 with an after-tax cash flow at the end of the year of $1,500 for three years SHOW ALL MATH WORK!!!

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You are considering investing $900 in a complete portfolio. The complete portfolio is composed of treasury bills that pay 3% and a risky portfolio, P, constructed with 2 risky securities X and Y. The optimal weights of X and Y in P are 70% and 30% respectively. X has an expected rate of return of 20% and Y has an expected rate of return of 17%. To form a complete portfolio with an expected rate of return of 13%, you should invest approximately __________ in the risky portfolio. This will mean you will also invest approximately __________ and __________ of your complete portfolio in security X and Y respectively. 62%, 43%, 19% 19%, 51%, 30% 43%, 30%, 27% 0%, 70%, 30%

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Consider the following table of assumed returns. RETURNS LARGE COMPANY U.S. YEAR STOCKS TREASURY BILLS 1973 4.64% 6.8% 1974 13.5 5.16 1975 18.59 6.13 1976 -15.69 6.39 1977 -26.67 7.19 1978 36.33 5.97 A. The arithmetic average returns for large-company stocks and T-bills over this time period was______ percent and ______ percent respectively (round to 2 decimal places) B. The standard deviation of the returns for large-company stocks and T-bills over this time period was ______ percent and ______ percent respectively (round to 2 decimal places) C. The average risk premium over this period was______ percent and the standard deviation was______ percent (round to 2 decimal places, negative numbers should be shown with a minus)

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If I collect my accounts receivables every 38 days, pay my accounts payable every 35 days, and my inventory turns over 8.4 times per year, what is my cash conversion cycle? SHOW ALL MATH WORK!!!

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I don’t understand the solution listed in the homework help for chapter 5 question #25 in the Corporate Finance Core Principles and Applications edition 3 textbook. Can someone break it down a bit more for me?

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You are considering investing in a compnay thtat cultivates tuna for sale to local restaurants. Use the following information: Sales price per tuna = $ 88.00 Variable costs per tuna = $ 5.60 Fixed costs per year = $660,000.00 Depreciation per year = $ 53,000.00 Tax pate = 39% The discount rate for the company is 11 percent, the initial investment in equipment is $371,000, and the project’s economic life is seven years. Assume the equipment is depreciated on a straight-line basis over the project’s life. A. What is the accounting break-even level for the project? Accounting break-even _______ units. B. What is the financial break-even level for the project? Financial break-even _______ units.

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How do I figure sustainable growth rate if you have a 16 percent ROE and a 29 percent payout ratio? (Round answer to 2 decimal places)

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How do I figure the following problem: A company has sales of $2,000, total assets of $850, and a debt-equity ratio of 0.45. If its return on equity is 17 percent, its net income is $__________. (Round answer to 2 decimals).

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It would ignorant and destroy value for Starbucks management to attempt to insulate the company from all risk. True or False Which one of the following is the best example of unsystematic risk a. Inflation exceeding market expectations b. a warehouse fire c. Decrease in corporate tax rates d. Decrease in the value of the dollar e. Increase in consumer spending The management of Starbucks only lists and describes the systematic risks that the company is exposed to in the 10-K becasue the other risks are no the responsibility of management. True or False Which of the following terms can be used to describe unsystematic risk 1. asset specific risk 2. diversifiable risk 3. market risk 4 unique risk a. 1and 2 b 2 and 3 c. 1 2 and 4 d. 2 3 and 4 e. 1 2 3 and 4

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Hilltop Coffee manufactures a coffee product by blending three types of coffee beans. The cost per pound and available pounds are as follows: Bean 1: .50/pound 500 lbs available Bean 2: .70/pound 600 available lbs. Bean 3: .45/pound and 400 pounds available. Consumer tests with with coffee products were used to provide quality ratings on a 0 to 100 scale, with higher ratings indicating higher quality. Product-quality standards for the blended coffee require a consumer rating for taste to be at least 75 and a consumer rating to be at least 80. The aroma and taste ratings for coffee made from 100% of each bean are given in the following: Bean 1: Aroma rating: 75 Taste rating: 86 Bean 2: Aroma rating: 85 Taste rating: 88 Bean 3: Aroma rating 60 Taste rating: 75 It is assumed taht the aroma and taste attributes of the coffee blend will be a weighted average of the attributes of the beans used in the blend. A. What is the minimum cost blend of the three beans that will meet the quality standards and provide 1000 pounds of the blended coffee product? B. What is the bean per pound of the coffee blend? c. determine the aroma and taste ratings for the coffee blend. d. If additional coffee were to be produced, what would be the expected cost per pound *please make answers detailed as possible. I am trying to learn this. ** the weighted average part is wat confuses me

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Historically, stocks have delivered a ______________________ return on average compared to Treasury bills but have experienced _________________ fluctuations in values. A.

higher, higher

B.

higher, lower

C.

lower, higher

D.

lower, lower

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Home Security Systems is analyzing purchase of major equipment that will cost 72000 the annual cash flow for the next three years will be year1= 36,000 year2=34,000 year3=29,000 Determine internal rate of retur using interpolation? With the cost of capital at 20% should the machine be purchased?

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Information on Huffington Power Co. is shown below. Assume the company’s tax rate is 33 percent. Debt: 5,500 5.5 percent coupon bonds outstanding, $1,000 par value, 21 years to maturity, selling for 103 percent of par; the bonds make semiannual payments. Common stock: 110,000 shares outstanding, selling for $58 per share; the beta is 1.15. Market: 6.5 percent market risk premium and 4 percent risk-free rate. The weighted average cost of capital is ____________ % (round answer to 2 decimal places)

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Instructions: 1. The foundation of your project is to apply three different allocation methods (direct, step-down, double apportionment) to the situation at a large group practice. The purpose is to give you some feel for how much variation in final allocation amounts is due to methodological differences. 2. Scenario ‘ You are CFO of the Maple Street Hospital. You have been asked to send a report to the Board of Directors regarding the best method to allocate non-direct costs to the Medical Services, Obstetrics and Emergency departments. Most of the people on the board are not financial people. The report needs to make sure they understand all the concepts of allocation. 3. Your report is to be in the form of a paper. You should be concise and to the point. Your paper should have a minimum of 5 pages including title and reference page. The maximum is 8 pages. You will be graded on APA format, content, and grammar. You can include table, graphs and spreadsheet within the report or as addendums. You will be looking at pre-tax profit for each department and for the whole. In the Doc Sharing area you will find the following reference for writing a report of this nature: a. MclaughlinAPAResearchEssay.pdf b. Writing a good report c. Writing conclusions d. Writing Project Reports 2004a.pdf

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INSTRUCTIONS: INSTRUCTIONS: Let%u2019s say McDonald%u2019s needs to raise $1 billion to expand into Africa. Determine whether McDonald%u2019s should have used all debt, all-stock, or a 50-50 combination of debt and stock to finance this market-development strategy. Assume a 38% tax rate, 5% interest rate, McDonald%u2019s stock price of $50 per share, and an annual dividend of $0.30 per share of common stock. The EBIT range for 2010 is between $6.332 billion and $9 billion. A total of 1 billion shares of common stock are outstanding. Develop an EPS/EBIT chart to reflect your analysis.

Describe the relevance of the EPS/EBIT chart and why it is significant with respect to strategy implementation. TEACHING NOTES: Amount needed to raise: $1 billion Interest rate: 5% Tax rate: 38% Stock price: $50 Annual dividend: $0.30 per share Number of shares outstanding: 1 billion

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Someone is considering the purchase of a 20 year, noncallable bond with an annual coupon rate of 9.5%. The face value is 1000 and has semiannual payments IF the required nominal yield to maturity is 8.2 %. What is the max price she should pay for the bond?

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An investor is forming a portfolio by investing $150,000 in stock A which has a beta of 1.50, and $250,000 in stock B which has a beta of 0.80. The return on the market is equal to 5 percent and Treasury bonds have a yield of 3 percent. What is the required rate of return on the investor’s portfolio?PLEASE SHOW ALL WORK THANS!!!!

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The corner market has decided to expand its retail store by building on a vacant lot it currently owns. This lot was purchased four years ago at a cost of $299,000, which the firm paid in cash. To date, the firm has spent another $38,000 on land improvements, all of which was also paid in cash. Today, the lost has a market value of $329,000. What value should be included in the analysi of expansion project for the cost of the land? a. the sum of the cash paid to date for both the lot and improvement? b. the original purchase price? c. the current market value of the land plus the cash paid for the improvements d. the current market value of the land e. zero because the land and the improvements were purchased as cash

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An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 23% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 6%. The correlation coefficient between the returns of A and B is .32. The risk-free rate of return is 8%. The proportion of the optimal risky portfolio that should be invested in stock A is __________. 37% 25% 30% 15%

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Which of the following statements concerning the valuation of firms using the method of comparables is FALSE? A.

If two different firms generate identical cash flows, the Law of One Price will imply that both firms have the same value.

B.

Comparables adjust for scale differences when valuing similar firms.

C.

Valuation multiples take into account differences in the risk and future growth between the firms being compared.

D.

Two firms that sell very similar products or offer very similar services will have different values if they are of different sizes.

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The following table represents forecasted sales information for Iniesta Inc. 2011 Sales With 20% Unit Forecasted Operations Increase Change Sales In Units (Millions) 200.00 240.00 40.00 Sales Revenues $3,000.00 $3,600.00 $600.00 Variable Cost of Goods Sold (2,000.00) (2,400.00) (400.00) Gross Profit $1,000.00 $1,200.00 $200.00 Fixed Operating Costs ($160.00) ($160.00) (0.00) Net Operating Income $840.00 $1,040.00 $200.00 1. By how much will net operating income increase for the given increase in sales and associated expenses? 2. What is the degree of operating leverage (DOL) for the projected change of 20% from the original 2011 forecast. 3. Assuming an identical cost structure, compared to a company with a degree of operating leverage 1.44, how risky is Iniesta, Inc? (More Risky, Less Risky, or Equally Risky)

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the foster company’s financing plans for next year include the sale of the long-term bonds with a 10% coupon. they believe they can sell the bonds at a price that will provide a ytm of 12%. if the marginal tax rate is 34% what is foster’s after-tax cost of debt? Please show work to be rate.

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Which of the following statements is CORRECT? A.

Even though Firm A’s current ratio exceeds that of Firm B, Firm B’s quick ratio might exceed that of A. However, if A’s quick ratio exceeds B’s, then we can be certain that A’s current ratio is also larger than B’s.

B.

Suppose a firm wants to maintain a specific TIE ratio. It knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio.

C.

Since the ROA measures the firm’s effective utilization of assets without considering how these assets are financed, two firms with the same EBIT must have the same ROA.

D.

Suppose all firms follow similar financing policies, face similar risks, have equal access to capital, and operate in competitive product and capital markets. However, firms face different operating conditions because, for example, the grocery store industry is different from the airline industry. Under these conditions, firms with high profit margins will tend to have high asset turnover ratios, and firms with low profit margins will tend to have low turnover ratios.

E.

Klein Cosmetics has a profit margin of 5.0%, a total assets turnover ratio of 1.5 times, a zero debt ratio and therefore an equity multiplier of 1.0, and an ROE of 7.5%. The CFO recommends that the firm borrow money, use it to buy back stock, and raise the debt ratio to 50% and the equity multiplier to 2.0. She thinks that operations would not be affected, but interest on the new debt would lower the profit margin to 4.5%. This would probably not be a good move, as it would decrease the ROE from 7.5% to 6.5%.

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The Free Float Comany, a company in the 36% tax bracket, has riskless debt in its capital structure which makes up 40% of the total capitl structure, and equity is the other 60%. The beta of the assets for this business is .8.What is the equity beta?

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The future value of $200 received today and deposited at 8 percent for three years is A. $248 B. $252 C. $158 D. $200 need work shown Answer

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(Future value) Bob Terwilliger rece3ived $12,345 for his services as financial consultant to the mayor%u2019s office of his hometown in Springfield. Bob says that is consulting work was his civic duty and that he should not receive any compensation. So, he has invested his paycheck into an account paying 3.98 percent annual interest and left the account in his will to the city of Springfield on the condition that the city would not collect any money from the account for 200 years. How much money will the city receive from Bob%u2019s generosity in 200 years?

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The future value of an ordinary annuity of $2,000 each year for 10 years, deposited at 12 percent, is a. $35,098 b. $20,000 c $39,310 d. $11,300

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Gateway Communications is considering a project with an initial fixed asset cost of $2.46 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $300,000. The project will not directly produce any sales but will reduce operating costs by $725,000 a year. The tax rate is 35 percent. The project will require $45,000 of inventory which will be recouped when the project ends. Should this project be implemented if the firm requires a 14 percent rate of return? Why or why not? A. No; The NPV is -$172,937.49. B. No; The NPV is -$87,820.48. C. Yes; The NPV is $251,860.34 D. Yes; The NPV is $466,940.57

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Given the below cash flows, what is the value of the stream at the end of year 5 if the cash flows are invested in an account that pays 12.5% annually? YEAR

CASH FLOW

0

$0

1

($2,000)

2

$10,000

3

$6,000

4

$4,000

5

$3,000

$26,128.42

$14,499.42

$25,552.92

$31,819.03

$23,128.42

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Gadgetron is considering a project that requires an initital investment of $450,000. The company’s CFO wants to know how long it will take to recover its initial investment in the project. The project’s expected net cash flows are as follows: Year 1 $275,000 Year 2 $475,000 Year 3 $400,000 1. What is the prject’s payback period? 2. What is the company’s discounted payback period? Assume the WACC is 8%. 3 The discounted payback period will always be ____________ (longer or shorter) that the regular payback period.

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Greg purchased stock in Bear Stearns and Co. at a price of $89 per share one year ago. The company was acquired by JP Morgan at a price of $10 per share. What is Greg’s return on his investment? a

-88.76%

b

-96.25%

c

-79.00%

d

-85.45%

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The Price Company will produce and sell 55,000 widgets next year. Variable costs will equal 40% of sales, while fixed costs will total $110,000. at what price must each widget be sold for the company to achienve an EBIT of $95,000? Please show your work to be rated.

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Phil can afford $160 a month for 4 years for a car loan. If the interest rate is 5.70 percent, how mcuh can he afford to borrow to purchase a car?

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The NPV and IRR methods are interrelated and are sometimes used together to make capital budgeting decisions. Consider this: The project has the same risk as the firm’s average project. Although you don’t know the project’s initial cost, you have been told that the project has an IRR of 13.8%. Your boss wants to accept the project because the project’s IRR exceeds the desired rate of return of 9.00%, but another manager has mentioned that the NPV should be considered. Although you do not know the value of the project’s initial investment, your boss would like you to evaluate a project with the following cash inflows. Year 1 $325,000 Year 2 $450,000 Year 3 $400,000 Year 4 $475,000 You plan to start the calculations by estimating the initial investment using information available to you. IRR is the cost of capital at which NPV equals $0. 1. Using this information, the initial investment of the project turns out to be what? 2. How much value does this project create for the firm?

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What is the Payback Period of the following project? Initial Investment: $600,000 Projected Life: 5 Net Cash Flows: Year 1 $50,000 Year 2 $100,000 Year 3 $150,000 Year 4 $200,000 Year 5 $230,000

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Your portfolio is 270 shares of Davis Inc. The stock currently sells for $92 per share. The company has announced a dividend of $2.80 per share with an ex-dividend date of April 19. What is the portfolio value.

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Optimum capital structure maximizes value for the shareholders. When the WACC of a firm is _________, the value of the firm is ________ and the stock price of the firm is ________. Answer maximized, maximized, maximized ?WRONG

a. minimized, minimized, minimized

maximized, minimized, maximized

minimized, maximized, maximized

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You are the owner of a small business that has the following balance sheet as of the most recent year: Current assets – $5,000 A/P – $1,000 Net fixed assets – 10,000 Accruals – 1,000 Long-term debt – 5,000 Retained Earnings – 8,000 Total Assets – $15,000 Total Liab – $15,000 Fixed and current assets are fully utilized (full capacity), and the assets and spontaneous liabilities are expected to increase at the same rate as sales. Next year you expect sales to increase by 50%. You also expect to retain $2,000 of earning within the firm. This business is financed soley by debt and “organic growth”, it has no common stock outstanding. What is next year’s additional external funding requirment, what is your firm’s AFN? Please show your work to be rated.

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Olsons Clothing Store. The 1,000 par value bonds have quoted annual intrest rate of 13% which is explained semiannually The yield to maturity on the bond is 12% annual intrest. There are 20 years to maturity. a- Compute the price of bonds based on semiannual intrest payments. b- With 15 years maturity if yield to maturity goes down to 10% what will be the new price of the bond? Please show work not just the formulas. What numbers are used and so forth.

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Musgrave Corp has fixed costs of $46,000 and variable costs that are 30% of the current sales price of $2.15 per unit. At this price, they sell 40,000 units. Musgrave can increase sales by 10,000 units by cutting its unit price from $2.15 to $1.95, but the rate of variable cost per unit will still be 30% of the new sales price. What is the change in EBIT if Musgrave decides to cut its price and what is the DOL at both sales levels? Please how work to be rated.

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A new production plant is estimated to generate revenues annually of $100,000. The taxes on the land are 4,000 per year. The expense of making the widgets is $2,000 per month based on past experience. Due to efficiency, this was reduced 10%. The depreciation of the plant is 50,000 per year. Assuming a corporate tax rate of 40%, what is the net income annually for the plant? __ A) $13,040 B) $13,200 C) $14,640 D) $26,520 show work

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Milo has tax exempt bonds from Holy Cross Hospital that yield 8.5%. He is in the 20% tax bracket. His investment banker wants him to buy taxable bonds from Memorial Hospital. What minimum rate must he get on the taxable bonds to make him consider this offer? 10.62%

42.5%

11.67%

8.5% You are billing a patient that was assigned DRG 123 with a weight of .9734 and an adjusted base rate of $4,259. What is the reimbursement for a typical hospital stay for DRG 123? $4,145.71

$5,030.08

$4,351.09

$6,247.27

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If a stock has a beta coefficient of 1.2, the return in the market is expected to be 14%, and the risk-free rate is 15%, then the Capital Asset Pricing Model says that the rate of return for the stock should be_____%? Please show work for rating.

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A stock has a beta of 1.7, the expected return on the market is 17 percent, and the risk-free rate is 7.65 percent. The expected return on this stock must be ___________ percent. (round answer to 2 decimal places)

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Suppose the following bond quote for IOU corporation appears n the financial page of today’s newspaper. Assume the bond has a face value of $1000, and the current date is April 15, 2010. Coupon 7.30, Maturity April 15, 2041 Last Price 91.725, Last yield ??? Est Vol 1.846 What is the yield to maturity of the bond? Round to two decimals. What is the current yield? Round to two decimals.

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A Treasury bond is quoted as 99:18 asked and 99:09 bid. What is the bid-ask spread in dollars on a $5,000 face value bond?

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Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm will raise the $1,708,000 in capital by issuing $750,000 of debt at a before-tax cost of 10.2%, $78,000 of preferred stock at a cost of 11.4% amd $880,000 of equity at a cost of 14.3%. The firm faces a tax rate of 40%. What will be the WACC for this project?

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Turnbull Co. has a target capital structure of 45% debt; 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 8.2% and its cost of preferred stock is 9.3% If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. If its current tax rate is 40%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings?

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Turner Video will invest 64500 in a project. The firms cost of capital is 6% The investment will provide the following inflows. 1-18,000 2-20,000 3-24,000 4-28,000 5-32,000 a- If the reinvestment of the net present value method is used what will be the total value of inflows at the end of five years. (assume inflows come at the end of the year) b-If the firm is able to earn 10% on reinvesment funds what will be the total value of inflows after five years? c-Which investment assumption is better?

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What is (a) unsystematic risk (company-unique or diversifiable risk) and (b) systematic risk (market or non-diversifiable risk)?

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The U.S. financial system has many complexities and it is impacted by several environmental factors, including federal regulations and the economy. Write a two to three (2-3) page paper in which you: Describe how the U.S. financial markets impact the economy, businesses, and individuals. Explain the role of the U.S. Federal Reserve, the Federal Reserve Chairman, and Board, indicating its effectiveness in today%u2019s economic environment. Provide support for rationale. Explain how interest rates influence the U.S. and global financial environment. Provide support for explanation. Describe how exchange rates may impact a business%u2019s decision to operate in foreign markets. Your assignment must follow these formatting requirements: Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions. Include a cover page containing the title of the assignment, the student%u2019s name, the professor%u2019s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length. The specific course learning outcomes associated with this assignment are: Discuss the key concepts related to money, monetary systems, and money supply. Describe the function of the Federal Reserve, its composition, and other key policy makers that influence the financial system. Explain the international monetary system, exchange rates, and the related impact on international trade. Use technology and information resources to research issues in finance. Write clearly and concisely about finance using proper writing mechanics.

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Suppose the real rate is 6.1 percent and the inflation rate is 1.3 percent. You would expect to see a rate of ____________ percent on a Treasury bill. (Round your answer to 2 decimal places).

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Suppose you invested $56 in the Ishares Dividend Stock Fund (DVY) a month ago. It paid a dividend of $0.37 today and then you sold it for $61. What was your return on the investment? A.

9.01%

B.

9.98%

C.

9.50%

D.

9.75%

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Suppose a stock had an initial price of $78 per share, paid a dividend of $1.25 per share during the year, and had an ending share price of $95. The percentage total return was___________ percent (round anwer to 2 decimal places)

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Suppose you are willing to pay $30 today for a share of stock which you expect to sell at the end of the year for $32. if you require an annual rate of return of 12%, what must be the amount of the annual dividend you expect to receive for the year? Please show work in neither financial calulator or formulas from excel.

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Stock in Dragula Industries has a beta of 1.2. The market risk premium is 8 percent, and T-bills are currently yielding 5.10 percent. The company%u2019s most recent dividend was $1.50 per share, and dividends are expected to grow at a 8.0 percent annual rate indefinitely. If the stock sells for $40 per share, what is your best estimate of the company%u2019s cost of equity?

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Thirty percent of the buyer%s gross margin for the next four years. The buyer in this case is Air Defense, Inc. (ADI). Its gross margin is 60 percent. Sales for year 1 are projected to be $3.5 million and then grow by 35 percent per year. This amount is paid today and is not discounted. Find present value

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Mounds Manufacturing has a target debt-equity ratio of 0.61. Its cost of equity is 17 percent, and its cost of debt is 8 percent. The tax rate is 34 percent. The weighted average cost of capital is ________ %. (round anwer to 2 decimal places)

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Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,726,724. have a life of five years, and would produce the cash flows shown in the following table. Year

Cash Flow

1

$630,780

2

-299,123

3

845,267

4

821,748

5

806,996

What is the NPV if the discount rate is 12.75 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)

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Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,419,028. have a life of five years, and would produce the cash flows shown in the following table. Year Cash Flow 1 $484,872 2 -299,244 3 885,913 4 1,067,687 5 559,139 What is the NPV if the discount rate is 15.41 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) NPV is $ ______ Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.90 million. This investment will consist of $2.10 million for land and $9.80 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.20 million, $2.24 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $1.94 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) NPV $ _____ The project should be accepted or rejected Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountain%u2019s opportunity cost of capital is 10.9 percent, and the costs and values of investments made at different times in the future are as follows: Year Cost Value of Future Savings (at time of purchase) 0 $5,000 $7,000 1 4,700 7,000 2 4,400 7,000 3 4,100 7,000 4 3,800 7,000 5 3,500 7,000 Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.) The NPV of each choice is: NPV0 = $ NPV1 = $ NPV2 = $ NPV3 = $ NPV4 = $ NPV5 = $ Suggest when should Bell Mountain buy the new accounting system? Bell Mountain should purchase the system in year1, year 2, year 3, year 4, year 5 Chip%u2019s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 88 percent as high if the price is raised 9 percent. Chip%u2019s variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm%u2019s FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.) At $20 per bottle the Chip%u2019s FCF is $ __________ and at the new price Chip%u2019s FCF is $ _______ Capital Co. has a capital structure, based on current market values, that consists of 37 percent debt, 17 percent preferred stock, and 46 percent common stock. If the returns required by investors are 9 percent, 13 percent, and 18 percent for the debt, preferred stock, and common stock, respectively, what is Capital%u2019s after-tax WACC? Assume that the firm%u2019s marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.) After tax WACC= %

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Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,419,028. have a life of five years, and would produce the cash flows shown in the following table. Year Cash Flow 1 $484,872 2 -299,244 3 885,913 4 1,067,687 5 559,139 What is the NPV if the discount rate is 15.41 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) NPV is $

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Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,419,028. have a life of five years, and would produce the cash flows shown in the following table. Year Cash Flow 1 $484,872 2 -299,244 3 885,913 4 1,067,687 5 559,139 What is the NPV if the discount rate is 15.41 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) NPV is $ ______ Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.90 million. This investment will consist of $2.10 million for land and $9.80 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.20 million, $2.24 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $1.94 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) NPV $ _____ The project should be accepted or rejected Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountain%u2019s opportunity cost of capital is 10.9 percent, and the costs and values of investments made at different times in the future are as follows: Year Cost Value of Future Savings (at time of purchase) 0 $5,000 $7,000 1 4,700 7,000 2 4,400 7,000 3 4,100 7,000 4 3,800 7,000 5 3,500 7,000 Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.) The NPV of each choice is: NPV0 = $ NPV1 = $ NPV2 = $ NPV3 = $ NPV4 = $ NPV5 = $ Suggest when should Bell Mountain buy the new accounting system? Bell Mountain should purchase the system in year1, year 2, year 3, year 4, year 5 Chip%u2019s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 88 percent as high if the price is raised 9 percent. Chip%u2019s variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm%u2019s FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.) At $20 per bottle the Chip%u2019s FCF is $ __________ and at the new price Chip%u2019s FCF is $ _______ Capital Co. has a capital structure, based on current market values, that consists of 37 percent debt, 17 percent preferred stock, and 46 percent common stock. If the returns required by investors are 9 percent, 13 percent, and 18 percent for the debt, preferred stock, and common stock, respectively, what is Capital%u2019s after-tax WACC? Assume that the firm%u2019s marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.) After tax WACC= %

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How much would Simon need to have on deposit at retirement in order to withdraw $35,000 annually over the 15 years if the retirement fund earns 8%?

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Snider Industries sells on term of 2/10, net 45. Total sales for the year are $1,500,000. Thirty percent of customers pay on the 10th day and take discounts: the other 70% pay, on average, 50 days after their purchases. a. What is the days sales outstanding? b. What is the average amount of receivables? c. What would happen to average receivables if Snider toughened its collection policy with the result that all non-discount customers paid on the 45th day. Remember to include a brief discussion of each problem.

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Sparrow Corp is evaluating a project which costs $200,000, is expected to last for 10 years and produce after-tax cash flows of $44,503 per year. If the firm’s required rate of return is 14%. What is the project’s MIRR? Please show work to be rated.

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St. Cloud Memorial has annual revenues of $3,900,300. Payment is made by 2 third party payers and some of the patients are self payers. 8% self pay on day 30. Payer A makes up 49% and pays on day 60. Payer B makes up 43% and pays on day 90. (Assume 365 days per year through out the next 3 questions) What is the average collection period for St. Cloud Memorial? 92.1

66.6

82.3

70.5

What is St. Cloud Memorial’s receivables balance? $984,157.89

$10,685.75

$753,345.61

$997,826.75

What would be St. Cloud Memorials receivables balance if a new collection system shifted collection from third party payers to 50 days and 70 days instead of 60 days and 90 days? $839,900.22

$3,060,399.78

$851,565.50

$609,087.94

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Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,385,761. have a life of five years, and would produce the cash flows shown in the following table. Year Cash Flow 1 $593,522 2 -281,896 3 645,782 4 1,000,257 5 779,060 What is the NPV if the discount rate is 15.21 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)

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The standard deviation of return on investment A is .16 while the standard deviation of return on investment B is .13. If the correlation coefficient between the returns on A and B is -.70, the covariance of returns on A and B is __________. 0.0146 0.0566 -0.0146 -0.0566

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The Stanley Construction Company is contemplating the purchase of a new earth mover. The mover%u2019s basic price is $50,000, and it would cost another $10,000 to modify it for special use. Assume that the mover falls into the MACRS 3-year class; it would be sold after 3 years for $20,000; and it would require an increase in net working capital (spare parts inventory) of $2,000. The earth mover would have no effect on revenue, but is expected to save the firm $20,000 per year in before-tax operating costs, mainly labor. The company’s marginal federal-plus-state tax rate is 40%. Utilize the following MACRS rates for depreciation expense: Year Depreciation Rate 1 33% 2 45 3 15 4 7 1. What is the net cost of the earth mover? 2. What are the operating cash flows in years 1,2, & 3? 3. What are the additional (non-operating) cash flows in year 3? 4. If the project’s cost of capital is 10%, should the earth mover be purchased? ***Note: Please show work so I can make sure I understand.

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A company is evaluating a proposed 4-year project. The depreciable cost will include the following: $300,000 for the equipment, $20,000 for shipping, and $30,000 for installation. The depreciation life is under the MACRS 3-year class, with a salvage value of $45,000. The inventories will rise by $18,000 and accounts payable will rise by $3,000. In addition, the new sales are estimated to be 150,000 units per year at $2.25 per unit. There is a variable operating cost that is 60% of sales and the company’s marginal tax rate is 35%. Determine the net operating cash flow for the initial year (Year 0).

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Company purchased new machine 2 years ago for 96,000 falls into 5 years macrscan currently be sold for 43,800 new eqipment will cost 320,000 it also falls into 5 year macrs new machine will provide the following added cost saving for the next 6 years 1-70,000 2-60,000 3-58,000 4-56,000 5-53,000 6-42,000 tax rate 40% and the cost of capital is 11% a=what is book value of the old equipment b=what is tax loss on the sale of old equipment c=what is tax benefit from the sale d=what is cash inflow from the sale of old equipment e=what is cost of new equipment include inflow from the sale of old equip,emt f=Determine deprication schedule for the new equip,emt g-determine depreciation of the remaining years of the old h=determine incremental depreciation between old and new and related tax shield benefits i=compute after tax benefits of the cost savings j=add depreciation and tax shield benefits and after cost saving and determine the present value k-compare the PV of incremenetal benefits to the net cost of new equipment should the replacement be undertaken?

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* Describe a business that you can see yourself owning and discuss the most efficient way to raise capital to either start or expand the business. Explain your rationale.

* Analyze the valuation of both stocks and bonds and then determine which is most difficult to do correctly. Provide an example to support your answer.

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In brokered markets

A

The commission charged by brokers is a lower cost to buyers and sellers than the cost of direct search

B

Buyers and sellers are brought together for a transaction fee

C

Brokers build a pool of price information through their extensive contacts

D

All of the above are true of broker markets

The Columbia Consumer Products Co. has issued perpetual preferred stock with a $100 par value. The firm pays a quarterly dividend of $2.60 on this stock. What is the current price of this preferred stock given a required rate of return of 12.5 percent?

A

$47.25

B

$80.00

C

$20.80

D

$83.20

What is the present net value of a project with the following cash flows if the discount rate is 17 percent? Year

Cash Flow

0

-$59,200

1

21,600

2

28,300

3

14,400

4

7,200

A

-$8,406.11

B

-$7,231.71

C

-$3,089.16

D

$1,407.92

E

$3,508.01

Yield to maturity: John Wong purchased a five-year bond today at $1,034.66. The bond pays 6.5 percent semiannually. What will be his yield to maturity?

A

6.7%

B

6.2%

C

5.9%

D

5.7%

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You buy a new piece of equipment for 26,621 and recieve a cash inflow of 3,500 a year for 15 years a= what is the internal rate of return round answer to whole percent

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1. Becker Industries is considering an all equity capital structure against one with both debt and equity. The all equity capital structure would consist of 26,000 shares of stock. The debt and equity option would consist of 13,000 shares of stock plus $245,000 of debt with an interest rate of 9 percent. What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes. 2. Pewter & Glass is an all equity firm that has 80,000 shares of stock outstanding. The company is in the process of borrowing $600,000 at 9 percent interest to repurchase 12,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes 3. Winter’s Toyland has a debt-equity ratio of 0.65. The pre-tax cost of debt is 8.7 percent and the required return on assets is 16.1 percent. What is the cost of equity if you ignore taxes? (Round to the 2nd decimal XX.XX%) 4. L.A. Clothing has expected earnings before interest and taxes of $48,900, an unlevered cost of capital of 14.5 percent, and a tax rate of 34 percent. The company also has $8,000 of debt that carries a 7 percent coupon. The debt is selling at par value. What is the value of this firm? (Round to the nearest cent

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Please see if these answers would be correct

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Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.80 million. This investment will consist of $2.90 million for land and $8.90 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.02 million, $2.35 million above book value. The farm is expected to produce revenue of $2.02 million each year, and annual cash flow from operations equals $1.92 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)

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23)To calculate the Dow Jones Industrial Avverage you would a)add the prices of the 20 stocks and divide by 20 b)add the prices of the 30 stocks and divide by 30 c)add the prices of the 30 stocks and divide by a factor supplied daily by the wall street street journal d)cannot be calculated by an investor

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2. (TCO 1) Market values reflect which of the following: (Points : 4) The amount someone is willing to pay today for an asset. The value of the asset based on generally-accepted accounting principles. The asset’s historical cost. A and B only None of the above

3. (TCO 1) Use the following tax table to answer this question: TAXABLE INCOME

TAX RATE

$0-

$50,000

15%

$50,001-

75,000

25

$75,001-

100,000

34

$100,001-

335,000

39

$335,001-

10,000,000

34

McKenzie, Inc. earned $144,320 in taxable income for the year. What is the company’s approximate average tax rate? (Points : 4)

27% 29% 31% 33% 35%

7. (TCO 3) Paper Pro needed a new store. The company spent $65,000 to refurbish an old shop and create the current facility. The firm borrowed 75 percent of the refurbishment cost at eight percent interest for 11 years. What is the amount of each monthly payment? (Points : 4) $91.05 $284.13 $556.50 $682.87 $731.60

8. (TCO 3) Which type of loan is comparable to the present value of a future lump sum? (Points : 4) effective annual rate amortized interest-only annual percentage pure discount

10. (TCO 6) Which of the following is true regarding the primary market? (Points : 4) it is the market where the largest number of shares are traded on a daily basis. it is the market in which the largest number of issues are listed. it is the market with the largest number of participants. it is the market where new securities are offered. it is the market where shareholders trade most frequently with each other.

11. (TCO 7) Which one of the following statements concerning financial leverage is correct?(Points : 4) The benefits of leverage are unaffected by the amount of a firm’s earnings. The use of leverage will always increase a firm’s earnings per share. The shareholders of a firm are exposed to greater risk anytime a firm uses financial leverage. Earnings per share are unaffected by changes in a firm’s debt-equity ratio. Financial leverage is beneficial to a firm only when the firm has minimal earnings.

12. (TCO 3) A 10-year bond pays 11 percent interest on a $1000 face value annually. If it currently sells for $1,195, what is its approximate yield to maturity? (Points : 4) 9.33% 7.94% 12.66% 8.10% 15. (TCO 6) A sinking fund is an account managed by a bond trustee for the sole purpose of:(Points : 4) paying interest payments on a semi-annual basis. redeeming bonds early. repaying the face value at maturity. paying the expenses required to reissue outstanding bonds. paying the “balloon payment” at maturity.

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3)if you traded primarily in low cap and high technology stocks, the index most likely to reflect the movement of your portfolio is: a)Dow Jones industrial Average b) Dow jones Composite Average c)NASDAQ composite e)Odd lot index d)S & P 500

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Assume earning before deprication and taxes is 111,000 depreciation of 49,000 and a 35% tax bracket a= how much would cash flow be if there was 11,000 in depreciation ? b=how much cash flow is lost due to the reduced depreciation between 49,000 and 11,000?

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3. (TCO 8) The stock of Chocolate Galore is expected to produce the following returns, given the various states of the economy. What is the expected return on this stock? STATE OF ECONOMY

PROBABILITY OF STATE OF ECONOMY

RATE OF RETURN

Recession

.02

-.06

Normal

.88

.11

Boom

.10

.17

(Points : 4)

7.33 percent 9.82 percent 11.26 percent 11.33 percent 11.50 percent

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Assume a zero coupon bond that sells for 162 dollars and will mature in 25 years at 1,400 dollars. What is the effective yield to maturity? (Round PV Factor to 3 decimal places.)

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A Weisbro and Sons common stock sells for $51 a share and pays an annual dividend that increases by 4.0 percent annually. The market rate of return on this stock is 9.70 percent. What is the amount of the last dividend paid by Weisbro and Sons??? B Railway Cabooses just paid its annual dividend of $1.90 per share. The company has been reducing the dividends by 11.4 percent each year. How much are you willing to pay today to purchase stock in this company if your required rate of return is 12 percent?

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10)AOL closed on wednesday at 25, with a “+12” in chance column. On tuesday, AOL closed at? A)$25 B)$25.50 C)$24 D)&24.50

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You own 2,200 shares of Deltona Hardware. The company has stated that it plans on issuing a dividend of $0.42 a share at the end of this year and then issuing a final liquidating dividend of $2.90 a share at the end of next year. Your required rate of return on this security is 16 percent. Ignoring taxes, what is the value of one share of this stock to you today? A. $2.30 B. $2.43 C. $2.52 D. $2.92 E. $3.32

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Admiral Corp. has no debt but can borrow at 7 percent. The firm’s WACC is currently 13 percent, and the tax rate is 36 percent. (round answers to 2 decimal points). I got (a) but cannot get (b), (c), or (d). (a) Admiral’s cost of equity is 13 percent. (b) If the firm converts to 25 percent debt, its cost of equity will be _____ percent. (c) If the firm converts to 50 percent debt, its cost of equtiy will be _____ percent. (d) Admiral’s WACC in parts (b) and (c) is _____ percent and _____ percent, respectively.

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American Health Care Services currently has 6,400,000 shares of stock outstanding and will report earnings of 13 million in the current year.The company is considering the issuance if 1,500,000 additional shars that will net $60 per share to the corporation a= what is the immediate dilution potential for this new stock issue? b=Assume they can earn 8% on the proceeds of stock issue in time to include them in the current years results Calculate EPS b2=Should the new issue be undertaken according to EPS

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Analyze bond ratings in recent years and then determine reasons why a firm might want to maintain a high bond rating. Explain with examples. Suggest a key advantage of equity financing and compare to debt financing options. Provide your rationale.

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There is 5 parts to this question, I got all but one part. Teardrop, Inc. wishes to expand it facilities. the company currently has 8.6 million shares outstanding and no debt. The stock sells for $41 per share, but the book value per share is $24. Net income for Teardrop is currently $17.6 million. The new facility will cost $36 million, and it will increase net income by $1.7 million. (a) Assuming a constant price-earnings ratio, determine the effect of issuing ndew equity to finance the investment. Specifically, the new book value per shar is $25.57 , the new total earnings are $19,300,151, the new EPS is $2.04, the new stock price is $40.80, and the new market-to book ration is $ 1.60. (b) For the stock price to remain unchanged, the new net income for Teardrop would have to be $ _______.

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7. (TCO C) Leslie has been offered the choice of either a $1,000 rebate or a 5.5%, 48-month loan for the new car she is purchasing. If Leslie will be financing $15,000 and she can get a 7.5%, 48-month loan at her credit union, should she take the $1,000 rebate or the 5.5% loan? (Show all work.) (Points : 20)

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6)the best way to protect against a price decline in a high beta stock that you own and which you expect to ultimately increase dramatically is to: a)go hort b)place a stop-loss order c)sell a call option d)buy a put option

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9. (TCO 1) Green Leaf Nursery has EBIT of $250,000, interest of $30,000, taxes of $50,000, and depreciation of $80,000. What is the company%u2019s operating cash flow? (Points : 3)

$297,200 $280,000 $340,000 $270,000 $250,000

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9. (TCO 2) The bankruptcy process has been utilized by firms as a means of: (Points : 4)

renegotiating labor contracts. reducing labor costs. avoiding payment of a legal judgment. improving the firm’s competitive position. all of the above 5. (TCO 1) Which of the following statements is true regarding the goal of financial management? (Points : 4)

The goal of maximizing the value per share of existing stock is relevant to all organizations. The ultimate goal of financial management is maximizing earnings and profits. For a company considering international operations, the goal will be the same but the company will have to consider the local, social, economical, and political environment in the decision-making process. None of the above are true statements.

3. (TCO 8) The stock of Chocolate Galore is expected to produce the following returns, given the various states of the economy. What is the expected return on this stock? STATE OF ECONOMY

PROBABILITY OF STATE OF ECONOMY

RATE OF RETURN

Recession

.02

-.06

Normal

.88

.11

Boom

.10

.17

(Points : 4)

7.33 percent 9.82 percent 11.26 percent 11.33 percent 11.50 percent

14. (TCO 8) You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of stock A? (Points : 4) 14.79 percent 15.91 percent 18.42 percent 19.07 percent 25.72 percent

1. (TCO 6) Which of the following is true regarding income bonds? (Points : 4) Are relatively uncommon Can be exchanged for a fixed number of shares at maturity only Can be exchanged for a fixed number of shares before maturity Allow the holder to require the issuer to buy the bond back

2. (TCO 6 and 7) Financial leverage deals with: (Points : 4) the relationship of fixed and variable costs. the percentage of debt in the capital structure. the entire income statement. the entire balance sheet.

3. (TCO 6) Company A has a bond outstanding with $90 annual interest payment, a market price of $820, and a maturity date in five years. Assume the par value to be $1,000. What is the bond’s current yield? (Points : 4) 9% 14% 11% Cannot be determined None of the above

4. (TCO 2) Which of the following does not reduce collection float? (Points : 4) consolidate all lockboxes into one lockbox, located near the home office. consolidate all lockboxes into one lockbox, located far from the home office. make sure all checks it receives are properly dated and signed. utilize the benefits of the Check Clearing Act for the 21st Century.

5. (TCO 2) ___________, is a system that minimizes inventory. (Points : 4) material requirements planning ABC approach just in time reorder points

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1 What is a static budget? What is a flexible budget? Which is more useful, and why? 2. What is the difference between a value-added and a non-value-added cost? Give an example of each. 3. What is the product life cycle? How does it impact pricing decisions? Explain in your own word and add the reference for this questions

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1. (TCO 2) Select any actions that do not affect the cash account. Select all that apply: (Points : 3) Goods are sold on credit An interest payment on a notes payable is made Raw materials are purchased and paid for with credit A new machine is purchased and paid for with the business line of credit

2. (TCO 2) Which one of the following will increase the operating cycle?(Points : 3) increasing the accounts payable period decreasing the accounts payable turnover rate decreasing the cash cycle increasing the accounts receivable turnover rate increasing the inventory period

3. (TCO 2) Assume Green Leaf Nursery anticipated sales of $500 in this quarter. Accounts receivable at the beginning of the quarter was $300. Assuming a collection period of 30 days, which is the approximate cash collections amount for the quarter? (Points : 3) $550 $630 $250 $170 None of the above

4. (TCO 2) Best Environment Engineering wrote a check and mailed it to the Electric Co. When the Electric Co. went to deposit the check, it discovered that the bank was closed due to flooding in the area. It was 5 days before the Electric Co. could deposit the check from Best Environment Engineering. Because the Electric Co.’s bank was closed:(Points : 3) Best Environment’s collection float decreased. the Electric Co.’s collection float decreased. Best Environment’s disbursement float increased. the Electric Co.’s disbursements float increased. the ledger balance of Best Environment was less than it would have been otherwise.

5. (TCO 2) Which of the following statements is false? Select all that apply: (Points : 3) The optimal credit policy minimizes the total cost of granting credit. Firms should avoid offering credit at all cost. An increase in a firm’s average collection period generally indicates that an increased number of customers are taking advantage of the cash discount. The costs of the credit application process and the costs expended in the collection process are carrying costs of granting credit. Character refers to the ability of a firm to meet its credit obligations out its operating cash flows.

6. (TCO 2) You place an order for 100 units of inventory Part A at a unit price of $522. The supplier offers terms of 1/25, net 40. How much should you remit if you take the discount? (Points : 3) $52,200 $39,150 $51,678 None of the above

7. (TCO 2) Auto Parts sells 1,600 electric parts per month and then reorders another 1,600 parts. If the relevant carrying cost per electric part is $4 and the fixed order cost is $650, what is the total carrying cost and the restocking cost, respectively? (Points : 3) $6,400 and $33,800 $3,200 and $33,800 $6,400 and $7,800 $3,200 and $7,800 None of the above

8. (TCO 2) Company ABC has expected sales of 75,000 units this year, an ordering cost of $8 per order and carrying costs of $1.20 per unit. What is the EOQ? (Points : 3) 900 units 1000 units 100 units 500 units None of the above

9. (TCO 2) The _________ is the time it takes to acquire and sell inventory. (Points : 3) cash cycle operating cycle inventory period accounts receivable period accounts payable period

10. (TCO 2) List three examples of short-term borrowing. (Points : 3)

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Dairy queen has a debt-equity ratio of 0.45 and a tax rate of 40%. It’s cost of equity is 11.2% and it’s pre-tax cost of debt is 7.9%. What is WACC?

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The Deluxe Corporation has just signed a 120-month lease on an assest with a 15-year life. The minimum lease payments are 2,000 per month (24,000 per year) and are to be discounted back to the present at a 9 percent annual discount rate. The estimated fair value of the property is 200,000. Use Appendix D. a) Calculate the lease period as a percentage to the estimated life of the leased property. (Round your answer to the nearest whole percent.) b) Calculate the present value of lease payments as a percentage to the fair value of the property. (Round PV Factor to 3 decimal places. Round your intermediate and final answer to 1 decimal place.) c) Should the lease be recorded as a capital lease or an operating lease? it’s either an operating lease or capital lease.

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You are considering an investment in Fields and Struthers, Inc. and want to evaluate the firm’s free cash flow. From the income statement, you see that Fields and Struthers earned an EBIT of $52 million, paid taxes of $14 million, and its depreciation expense was $5 million. Fields and Struthers’ gross fixed assets increased by $34 million from 2007 to 2008. The firm’s current assets increased by $20 million and spontaneous current liabilities increased by $14 million. Calculate Fields and Struthers’ operating cash flow(OCF), investment in operating capital (IOC) and free cash flow (FCF) for 2008. Which answer is correct: OCF = $47,000,000; IOC = $37,000,000; FCF = $10,000,000 OCF = $43,000,000; IOC = $40,000,000; FCF = $3,000,000 OCF = $49,000,000; IOC = $46,000,000; FCF = $3,000,000

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1. (TCO 4) Which of the following is true regarding the evaluation of projects? (Points : 4) sunk costs should be included erosion effects should not be considered financing costs are not included opportunity costs are irrelevant

2. (TCO 4) There are several disadvantages to the payback method, among them: (Points : 4) payback ignores the time value of money. payback can be used in conjunction with time adjusted methods of evaluation. payback is easy to use and to understand. none of the above is a disadvantage.

3. (TCO 3 and 4) A net present value of zero implies that an investment: (Points : 4) has no initial cost. has an expected return that is less than the required return. should be rejected even if the discount rate is lowered. never pays back its initial cost. is earning a return that exactly matches the requirement.

4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent? YEAR

0

1

2

3

4

CASH FLOW

-$32,000

$9,000

$10,000

$15,200

$7,800

(Points : 4)

$1,085.25 $1,193.77 $3,498.28 $4,102.86 $4,513.15

5. (TCO 4) The Inventive Co. is considering a new project. This project requires an initial cash investment of $70,000. The project will generate cash inflows of $10,500 in the first year. Then, the project will do nothing for two years, after which time cash inflows of $25,000 will be generated for four years. How long will it take the Inventive Co. to recover its $70,000 investment? (Points : 4) 5.16 years 5.38 years 6.11 years 6.62 years 6.94 years

6. (TCO 4) The postponement of a project until conditions are more favorable: (Points : 4) is a valuable option. is referred to as the option to extend. could not cause a negative net present value project to become a positive net present value project. will generally cause the internal rate of return for a project to decline.

7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. (Points : 4) contingency planning. hard rationing. soft rationing. capital constraint. scenario analysis.

8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? (Points : 4) The net present value of the project is approximately $10,000 This project should be accepted because it has a positive net present value This project’s payback period is 10 years or more None of the above is true

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1. (TCO 8) The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield, are based on: the largest 20 percent of the stocks traded on the NYSE. the stocks of the largest 10 percent of the publicly traded firms in the U.S. all of the stocks listed on the NYSE. the stocks of the 500 companies included in the S&P 500 index.

2. (TCO 8) Which of the following is true regarding the efficient market hypothesis? It argues that efficient markets are not volatile throughout a trading day. It suggests that an efficient market can only consider historical information when determining current security prices. It proves that market inefficiencies do not exist in either the short-run or the long-run. It implies that all investments in an efficient market have a net present value of zero.

3. (TCO 8) Which of the following factors will affect the expected rate of return on a security? Select all that apply: multiple states of the economy probability of occurrence for any one economic state market rate of return given a particular economic state security beta

4. (TCO 8) Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate expected return of this investment? 11% 17% 16.60% 10%

5. (TCO 8) Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal is to create a two-security portfolio that will have an expected return of 12%. If you have $250,000 to invest today, approximately how much would you invest in Stock B? $96,000 $150,000 $175,000 More than $200,000

6. (TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows: The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. What is the standard deviation of Stock I and II respectively?

12 and 20% 12.5 and 23% 1.25 and 2.326% Cannot be determined with the information given

7. (TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows: The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. Which statement is true? Select all that apply:

Stock I has more overall risk than Stock II Stock II has less systematic risk than Stock I Stock I has a higher risk premium than Stock II None of the above are correct statements

8. (TCO 8) Which statements are true regarding risk? Select all that apply: The expected return is usually not the same as the actual return A key to assessing risk is determining how much risk an investment adds to a portfolio Some risks cannot be decreased or mitigated by the financial manager. The higher the risk, the higher the return investors require for the investment

9. (TCO 8) Are all risks diversifiable? Why or why not?

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1. (TCO 3) Given an interest rate of zero percent, the future value of a lump sum invested today will always: (Points : 3) remain constant, regardless of the investment time period. decrease if the investment time period is shortened. decrease if the investment time period is lengthened. be equal to $0. be greater than the initial investment amount.

2. (TCO 3) Which one of the following is an example of an annuity, but not a perpetuity? (Points : 3) unequal payments each month, for 18 months payments of equal amount each quarter forever unequal payments each year forever equal payments every six months for 48 months unending equal payments every other month

3. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 13 percent? Assume annual payments. (Points : 3) $1078 $1085 $927 $1000

4. (TCO 6 and 8) Which one of the following statements is correct? (Points : 3) Bond issuers maintain a listing of bondholders when bonds are issued in bearer form. An indenture, is a contract between a corporation and its shareholders. Collateralized bonds are called debentures. The description of any property used to secure a bond issue is included in the bond indenture.

5. (TCO 3) Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $850. The annual coupon payments are $80. If the bonds have 10 years until maturity, what is the approximate YTM of the bonds?(Points : 3) 10.50% 11.50% 11.75% 12%

6. (TCO 3) Bean Coffee issued preferred stock many years ago. It carries a dividend of $8 per share, fixed. As time has passed, yields have decreased from the original eight percent (at the time of issuance) to six percent. What was the original issue price? Hint: Yield is the same as required rate of return. (Points : 3) $100 $400 $7.40 $86.40 None of the above

7. (TCO 3) Intelligence Research, Inc. will pay a common stock dividend of $1.60 at the end of the year. The required rate of return by common stockholders is 13 percent. The firm has a constant growth rate of nine percent. What is the current price of the stock? (Points : 3) $35 $40 $27 $29

8. (TCO 3) Royal Electric paid a $2 dividend last year. The dividend is expected to grow at a constant rate of five percent over the next three years. Common stockholders require a 12 percent return. What are the values of the dividends for years 1, 2 and 3, respectively? (Points : 3) $2, $2.10 and $2.205 $2, $2.205 and $2.315 $2.10, $2.205, and $2.315 $2.10, $2.205 and $2.456

9. (TCO 6) The market where new securities are offered is called the _____ market. (Points : 3) primary main secondary principal dealer

10. (TCO 6) NASDAQ is a(n): (Points : 3) electronic dealer market. electronic broker market. market based on specialists. dealer market with a single market maker. electronic ECN.

11. (TCO 6) The annual interest on a bond divided by the bond’s market price is called the: (Points : 3) yield to maturity. yield to call. total yield. required yield. current yield.

12. (TCO 6) Star Industries has one outstanding bond issue. An indenture provision prohibits the firm from redeeming the bonds during the first two years. This provision is referred to as a _____ provision. (Points : 3) deferred call market liquidity debenture sinking fund

13. (TCO 8) Which of the following is true regarding bonds? (Points : 3) Bonds do not carry default risk. Bonds are sensitive to changes in the interest rates. Moody%u2019s and Standard and Poor%u2019s provide information regarding a bond%u2019s interest rate risk. Municipal bonds are free of default risk. None of the above is true

14. (TCO 6) Which of the following is not a floating-rate bond? (Points : 3) A bond that adjusts the coupon payments based on an interest rate index, such as the T-bill. An EE Savings Bond issued by the U.S. government. A bond that does not have any coupons until maturity. A bond that adjusts the coupon and face value payment based on inflation. TIPS

15. (TCO 6) Which of the following is true regarding put bonds? Select all that apply: (Points : 3) Have coupons that depend on the company%u2019s income Can be exchanged for a fixed number of shares before maturity only Can be exchanged for a fixed number of shares before maturity Allow the holder to require the issuer to buy the bond back

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A corporation’s bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. a. What is the yield to maturity at a current market price of (1) $829 or (2) $1,104? b. Would you pay $829 for one of these bonds if you thought that the appropropriate rate of interest was 12% – that is, if rd = 12%? Explain your answer. ** I have been using Excel for my finance questions and cannot figure this one out.

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Cede & Co. can borrow at 11.25 percent. Cede currently has no debt, and the cost of equity is 13.50 percent. The current value ofthe firm is $667,000. The corporate tax rate is 32 percent.

Required:

What will the value be if Cede borrows $224,000 and uses the proceeds to repurchase shares?

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Although the Chen Company%u2019s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The firm%u2019s WACC is 10%, and its marginal tax rate is 35%. Should Chen buy the new machine?

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Hi book Fundamentals of Financial Management Concise Chapter 1 Questions: 1-1, 1-2, 1-7 Chapter 2 Questions: 2-4, 2-6, 2-9

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Ms.Lauren weeks purchased 100 acres of land in 1990 for $100,000.If she sells the land for $5000 per acre in 2010,what rate of return will she have earned on her investment?(disregard property and income taxes) please show work so i will better understand..thank you.

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Mini-Project 3: Weighted Average Cost of Capital: Find 2012 financial statements and other financial data (e.g., beta) for the Boeing Company (Stock ticker: BA). from Yahoo! Finance, Google Finance, MSN Money, UHV Online library, or other sources. (1) Estimate the company%u2019s weights of capital (debt, preferred stock, and common stock). (2) Estimate the company%u2019s before-tax and after-tax component cost of debt; (3) Estimate the firm%u2019s component cost of preferred stock; (4) Estimate the component cost of common equity using CAPM. (5) Compute the firm%u2019s weighted average cost of capital (WACC).

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Please show the formlua that was used to solve the following questions

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O’neals men shop inc speacilizes in large size clothing had a four year growth in EPS.have grown from 1.00 to 2.34 a= use appendix a to determine compound annual growth rate of growth in earnings b=based on part a project earnings for next year c=assume dividend payout ratio of 60% compute D1 d=current price of stock is 22 e=if flotaion cost is 2.5 compute cost of new common stock using growth rate from part a and dividend from part c Please show work

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Olsen clothing store 1000 par value bonds annual intrest rate 8% paid semiannually YTM is 10%annual intrest at 15 YTM a= compute the price of bonds based on semiannual payment b=with 10 years to maturity if YTM goes down to 8% what is price of new bond?

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The options for this question are either 1. Decrease the ability to pay dividends 2. Increase the ability to pay dividends

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Myopic Optical is seeking to borrow $75000 from National Bank. A.) if the bank requires a 20% minimum compensating balance,how much will Myopic Optical be able to effectively use? B.)If the bank quotes a rate of 12%, what will the interest rate be after considering the compensating balance requirement? C.)If myopic must gain the use of $75000,how much must be borrowed? Please show any work so I will understand more.Thank you.

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the nickelodeon manufacturing co. has a series of $1000 par value bonds outstanding.Each bond pays interest semi-annually and carries an annual coupon rate of 7%.some bonds are due in 3 years and others are due in 10 years. if the required rate of return on bonds is 10% what is the current price of theA)the bonds with 3 years to maturity B) bonds with 10 years maturity?please explain the relationship between the number of years until the bond matures and it pricee. Please show work so i will better understand.Thank you.

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Please help with the following question

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Please help with the following questions

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Please help with the following questions

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Please help and see if these answers are correct or not..

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Help with the following

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Please help with the following question

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solving for r of an annuity: You lend a friend $30,000 which your friend will repay in five equal annual payments of $10,000. The first payment to be received 1 year from now. What rate of return does this loan receive?

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The stock of Big Joe’s has a beta of 1.14 and an expected return of 11.6%. The risk-free rate of return is 4%. What is the expected return on the market?

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Standard deviation measures _____ risk.

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Stock Stream has decided to offer a new bond. Its investment banker has informed it that the 10-year bonds will have a face value of $1,000 and coupon rate of 10% compounded quarterly, can be sold for $1075, but the investment bank will charge a $14 a bond in floatation costs. What is the cost of debt for Stock Stream if their tax rate is 30%?

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Present–Value Calculation The following simple present value formula shows the effect … Let’s say a city wants to open a recycling center aimed at reducing waste. … Three different discount rates are estimated at 5%, 6 %, and 7%. The time period for receiving the benefits of the program is two years. calculate the present value at each interest rate

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Presley Corp is going public current after tax earnings are 7,900,000 and 2,800,000 share are owned by present stockholders . The new public offering represents 600,000 new share sthe new shares will be priced to the public at $20 a share with a 4% spread on the offering price there will be 210,000 in out of pocket cost tot he corporation a=Compute net proceeds to the presley corp b=Compute EPS immediatly before the stock issue c=Compute the earnings per share immediatly after the stock issue d= determine what rate of return must be earned on the net proceeds to the corporation so there will be a dilution of earnings per share during the year going public e=determine what rate of return must be earned on the proceeds of the corporation so there will be 5% increase in EPS during the year going public (round answers to 2 decimal places

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(TCO1) Telemarket Inc. has sales of $625,000. They paid $43,000 in interest during the year and depreciation was $79,000. Administrative costs were $100,000 and other costs were $160,000. Assuming a tax rate of 35 percent, what is Telemarket%u2019s taxes figure? $100,100 $85,050 $112,700 $72,900

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Tim Smith is the owner, president, and primary salesperson for Blue Manufacturing. Because of this, the company’s profits are driven by the amount of work Tim does. If he workds 40 hours each week, the company’s EBIT will be $405,000 per year, and if he works a 50-hour week, the company’s EBIT will be $505,000 per year. the company is currently worth $2054 million. The company needs a cash infusion of $1.3 million, and it can issue equtiy or issue debt with an interest rate of 9.8 percent. Assume there are no corporate taxes.(round answer to the nearest whole dollare amount). What are the cash inflow to Tim under each scenario? Debt issue Equity issue 40 hour week cash flow $________ $_________ 50 hour week cash flow $________ $_________

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Timber Company computes it break even point strictly on the basis of cash expenditure related to fixed costs. Its total fixed cost are 8500000 but 10% of this value is represented by depreciation Its contribution margin is for each unit is $29 how many units does the firm need to sale to reach the break even point?

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Trades between large institutional investors that take place without the benefits of brokers or dealers

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Trigen Corp. management will invest cash flows of $1,147,960, $698,923, $769,024, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years. If the appropriate interest rate is 8.95 percent, what is the future value of these investment cash flows six years from today? You wrote a piece of software that does a better job of allowing computers to network than any other program designed for this purpose. A large networking company wants to incorporate your software into their systems and is offering to pay you $486,000 today, plus $486,000 at the end of each of the following six years for permission to do this. If the appropriate interest rate is 8 percent, what is the present value of the cash flow stream that the company is offering you?

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1. The Peanut Shack has 6,5000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $145,600. The company just announced a 3-for-2 stock split. What will the market price per share be after the split? (Round to the nearest cent) 2. Tucker’s National Distributing has a current market value of equity of $10,665. Currently, the firm has excess cash of $640, total assets of $22,400, net income of $3,210, and 500 shares of stock outstanding. Tucker’s is going to use all of its excess cash to repurchase shares of stock. What will the stock price per share be after the stock repurchase is completed? (Round to the nearest cent) 3. Jenningston Mills has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase? (Round to the nearest cent) 4. Robinson’s has 46,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $52 a share. The balance sheet shows $46,000 in the common stock account, $515,000 in the paid in surplus account, and $530,000 in the retained earnings account. The firm just announced a 2-for-1 stock split. How many shares of stock will be outstanding after the split? 5. Murphy’s, Inc. has 32,600 shares of stock outstanding with a par value of $1.00 per share. The market value is $13.00 per share. The balance sheet shows $89,150.00 in the capital in excess of par account, $32,600.00 in the common stock account, and $160,950 in the retained earnings account. The firm just announced a 14 percent (small) stock dividend. What will the market price per share be after the dividend? (Round to the nearest cent)

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The Woods Co. and the Garcia Co. have both announced IPOs at $45 per share. One of these is undervalued by $11.50, and the other is overvalued by $5.50, but you have no way of knowing which is which. You plan on buying 1,250 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. (a) Assuming you could get 1,250 shares in Woods and 1,250 shares in Garcia, what would your profit be? PROFIT: $ _________ (b) What profit do you actually expect? EXPECTED PROFIT: $ __________

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1. “Financial analysts forecast Safeco Corporation (SAF) growth for the future to be a constant 10 percent. Safeco’s recent dividend was $1.20. What is the value of Safeco stock when the required return is 12 percent” (Cornett, Adair, & Nofsinger, 2014, p. 205)?

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Walton and Company is the managing investment banker for a major new underwriting. The price of the stock to the investment banker is $17 per share. Other syndicate members may buy the stock for $19.25. The price to the selected dealers group is $21.80, with a price to brokers of $22.20. Finally, the price to the public is $22.50. a=If Walton and Company sells its shares to the dealers group, what will the percentage return be? b=If Walton and Company also performs the dealer%u2019s function and sells to brokers, what will the percentage return be? c=If Walton and Company fully integrates its operation and sells directly to the public, what will its percentage return be? round to 2 decimal places

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White Corp. has no debt but can borrow at 7 percent. The Firm’s WACC is currently 13 percent, and the tax rate is 36 percent. a. White’s cost of equity is __________ %. b. If the firm converts to 25 percent debt, its cost of equity will be ________ percent. c. If the firm converts to 50 percent debt, its cost of equity will be ________ percent. d. White’s WACC in parts (b) and (c) is __________ percent and _______ percent, respecitvley. (Round all answers to 2 decimal places)

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Wesson Industries has a debt-equity ratio of 1.6. Its WASS is 15 percent, and its cost of debt is 14 percent. The corporate tax rate is 35 percent. (round answers to 2 decimal places). I got (a) , (b) and part of (c), I just can’t seem to get the right answers for the rest of (c). (a). Wesson’s cost of equity capital is 24.44 percent. (b). Wesson’s unlevered cost of equity capital is 19.12 percent. (c). The cost of equity would be ________ percent if the debt-equity rato were 2, _________ percent if the debt-equity ratio were 1, and 19.12 percent if the debt-equity ratio were 0.

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How much would you be willing to pay (rounded to the nearest dollar) for a 20-year annuity due if the payments are 44,500 per year and you want to earn a rate of return equal to 5.5% per year?

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12. A retailer buys items for $55. At an original retail price of $85, it expects to sell 1,000 units. a. If the price is marked down to $75, how many units must the retailer sell to earn the same total gross profit it would attain with an $85 price? b. If the price is marked up to $90, how many units must the retailer sell to earn the same total gross profit it would attain with an $85 price?

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1. On march 14, 2013, the Dow Jones Industrial Average set a new high. THe index closed at 14,539.14, which was up from the previous day’s close of 14,455.28. What was the return (in percent to four decimal places) of the stock market for March 14, 2013?

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1) First National Bank charges 14.5 percent compounded monthly on its business loans. First United Bank charges 14.8 percent compounded semiannually.

Calculate the EAR for First National Bank and First United Bank. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

EAR First National

%

First United

%

As a potential borrower, which bank would you go to for a new loan?

First National Bank First United Bank 2)oints An investment will pay you $53,000 in 11 years. If the appropriate discount rate is 8 percent compounded daily, what is the present value? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Present value

$

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The Wriglwy COmpany needs to raise 21 million The investment banking firm of Tinker Evers and Chance will handle transaction. a= If stock is utilized 2,100,000 shares will be sold to the public for $11 per share The corp will recieve $10 per share What is the % underwriting spread per share b=If bonds are utilized slightly over 21,000 bonds will be sold to the public for 1,007 per bond Corporation will recieve $998 per bond What is the percentage of underwriting spread per bond c=WHich alternative has the largest % of spread c2= Is this the normal relationship between the two types of issues?

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You wrote a piece of software that does a better job of allowing computers to network than any other program designed for this purpose. A large networking company wants to incorporate your software into their systems and is offering to pay you $497,000 today, plus $497,000 at the end of each of the following six years for permission to do this. If the appropriate interest rate is 7 percent, what is the present value of the cash flow stream that the company is offering you

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Fifteen years ago, the Archer Corporation borrowed 7,150,000 dollars. Since then, cumulative inflation has been 56 percent(a compund rate of approximately 3 percent per year). a) When the firm repays the orginial 7,150,000 loan this year, what will be the effective purchasing power of the 7,150,000? (Hint: Divide the loan amount by one plus cumulative inflation). (Round your answer to the nearest dollar amount.) b) To maintain the orginial 7,150,000 purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation.) (Round your answer to the nearest dollar amount.)

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The yield to maturity on a bond is currently 8.46 percent. The real rate of return is 3.22 percent. What is the rate of inflation?

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The yield to matuity for 25 year bonds is as follows for four different bond rating categories. Aaa 9.60% Aa1 9.80% Aa2 10.00% Aa3 11.20% The bonds of Falter Corporation were rates as Aa2 and issued at par a few weeks ago. The bonds have just been downgraded to Aaa determine the new price of the bonds, assuming a 25 year maturity and semiannual interest payment. (Round PV Factor to 3 decimal places. Round your answer to 2 decimal places.)

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What is the yield to maturity for a Poughkeepsie Gypsy Fortune Tellers%u2019 zero coupon bond that matures in 14 years if the bond is selling for $530.00? 4.64% 5.84% 5.49% 4.28%

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young person killed in a plane crash he could have earned 270,000 per year for the next 30 years. Attorney believes it should be discounted back to the present 6% the other attorney wants a discount of 12% a= what is the differnce of the pv of the settlement at 6% and at 12% b= what is the difference round to the nearest dollar

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1)If you put up $40,000 today in exchange for a 6.25 percent, 15-year annuity, what will the annual cash flow be?(round to 2 decimals) 2) If you deposit $6,000 at the end of each of the next 25 years into an account paying 10.30 percent interest, how much money will you have in the account in 25 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Future value

$

How much will you have if you make deposits for 50 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Future value

$

3) You want to have $73,000 in your savings account 12 years from now, and you’re prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.80 percent interest, what amount must you deposit each year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Deposit amount

$

4)The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $26,000 per year forever. If the required return on this investment is 5.30 percent, how much will you pay for the policy? (Round your answer to 2 decimal places. (e.g., 32.16) 5) Find the EAR in each of the following cases (Use 365 days a year. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)):

Stated Rate (APR)

Number of Times Compounded

9.7

%

Effective Rate (EAR)

Quarterly

18.7

Monthly

14.7

Daily

11.7

Infinite

%

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Using a 4.5% discount rate, an initial Investment of $490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.calculate the Net Present Value, Payback, Profitability Index, and IRR.

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Peyton%u2019s Colt Farm issued a 30-year, 7.2 percent semiannual bond 6 years ago. The bond currently sells for 87.5 percent of its face value. The company%u2019s tax rate is 38 percent. The book value of the debt issue is $103 million. In addition, the company has a second debt issue, a zero coupon bond with 9 years left to maturity; the book value of this issue is $62 million, and it sells for 59.0 percent of par.

Requirement 1: What is the total book value of debt? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

Total book value of debt

$

Requirement 2: What is the total market value of debt? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

Total market value

$

Requirement 3: What is the aftertax cost of debt? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

Aftertax cost of debt

%

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A portfolio has 25% of its funds invested in Security C and 75% of its funds invested in Security D. Security C has an expected return of 8% and a standard deviation of 6%

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A portfolio has 25% of its funds invested in Security C and 75% of its funds invested in Security D. Security C has an expected return of 8% and a standard deviation of 6%. Security D has an expected return of 10% and a standard deviation of 10%. The securities have a coefficient of correlation of 0.6. Which of the following values is closest to portfolio return and variance?

Cannot calculate without the number of covariance terms. .100; .00849 .095; .001675 .090; .0081 .095; .0072

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Sunban Corp. is comparing two different capital structures. Plan A would result in 1,210 shares of stock and $18,150 in debt. Plan B would result in 990 shares of stock and $30,250 in debt. The interest rate on the debt is 11 percent. (a)Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $11,000. The all-equity plan would result in 1,540 shares of stock outstanding. Plan A has an EPS of $7.44 Plan B has an EPS of $7.75, and All-Equity Plan has an EPS of $7.14. (b) In part (a) the break-even levels of EBIT for Plans A and B are $9317 and $9317, respectively, as compared to that for an all-equity plan. (round to 2 decimals) (c). Ignoring tasex, EPS will be identical for Plans A and B when their EBITs are each $9317. (Round to nearest whole dollar) (d) Repeat parts (a), (b) and (c) assuming that the corporate tax rate is 39 percent. (i) EPSs for Plans A, B, and all-equity are $ _____, $ _____, and $ _____, respectively. (round to 2 decimal places) (ii) Break-even EBITs for Plans A and B compared to an all-equity plan are $ _____ and $ _____, respectively (round to nearest whole dollars). (iii) Break-even EBIT for Plan A versus Plan B: $ _____. (round to nearest whole dollar)

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Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $3.672 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $285,600. The project requires an initial investment in net working capital of $408,000. The project is estimated to generate $3,264,000 in annual sales, with costs of $1,305,600. The tax rate is 31 percent and the required return on the project is 16 percent.

Required: (a)

What is the project’s year 0 net cash flow? (Click to select) -4,284,000 -3,876,000 -4,080,000 -4,488,000 -3,672,000

(b)

What is the project’s year 1 net cash flow? (Click to select) 1,557,662 1,644,199 1,730,736 1,903,810 1,817,273

(c)

What is the project’s year 2 net cash flow? (Click to select) 1,817,273 1,730,736 1,557,662 1,644,199 1,903,810

(d)

What is the project’s year 3 net cash flow? (Click to select) 2,452,590 2,335,800 2,219,010 2,569,380 2,102,220

(e)

What is the NPV? (Click to select) 194,681 1,573,323 204,415 -673,293 215,042

rev: 09_18_2012

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Suppose the real rate is 3.07% and the nominal rate is 8.29%. Solve for the inflation rate. Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

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Suppose that Apex HealthServices has four difference projects.These projects are listed below, along with the amount of capital invested and estimated corporate and market betas: Project Amount Invested Corporate beta Market Betas walk-in-clinic 500,000 1.5 1.1 MRI facility 2,000,000 1.2 1.5 Clinical laboratory 1,500,000 0.9 0.8 X-ray laboratory 1,000,000 0.5 1.0 5,000,000 (a)why do the corporate and market betas differ for the same project? (b)what is the overall corporate beta of Apex HealthServices? Is the calculated beta consistent with corporate risk theroy? (c)what is the overall market beta of Apex Health services? (d) How does the riskiness of Apex’s stock compare with the riskiness of an average stock? (e) would by Supreme Savings” id=”_GPLITA_0² class=”c3² href=”http://www.Transtutors.com/homework-help/questions-and-answers/suppose-apex-healthservicesdifference-projects-projects-listed-capital-invested-estimated-q1383937#” name=”_GPLITA_0²>stock investors required rate of return on Apex that is greater than, less than,or the same as the return on an average-risk stock?

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Systems is evaluating a 53,800 project with the following cash flow Years 1 cash flow 9240 2 15,900 3 22,600 4 21,300 5 33,000 the coeffecient of variation is .975 0-.25=7% .26-.50=9% .51-.75=15% .76-1.00=19% 1.01-1.25=22% a- select appropriate discount rate b- compute net PV (round to nearest dollar)

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Tackett, Inc., has no debt outstanding and a total market value of $159,000. Earnings before interest and taxes, EBIT, are projected to be $15,000 if economic conditions are normal. If there is strong expansion in the economy, the EBIT will be 31.8 percent higher. If there is a recession, then EBIT will be 63.6 percent lower. Tackett is considering an $64,000 debt issue with a 6 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 2,500 share outstanding. Ignore taxes for this problem, all answers should be rounded to 2 decimal places. (a). Earnings per share, EPS, for the recession, normal, and expansion scenarios before any debt is issued are $ ________, $_______, and $________, respectively. If the economy enters a recession or expands, EPS will change by ________ percent, or ________ percent, respectively. (do not round interim calculations) (b). Now assume that Tackett goes through with recapitalization. Earnings per share, EPS, for the recession, normal, and expansion scenarios are $ _________, $__________, and $__________, respectively. If the economy enters a recession or expands, EPS will change by _________ percent or _________ percent respectively. (Do not round interim calculations).

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Shortline Railroad is considering a investment of 110,000 in either two companies the cash flows are Year 1-Electric Company is 80,000 and Water Works is 15,000 2,EC-15,000 WW-15,000 3,EC 15,000 WW 80,000 4-10,EC 15,000 WW 15,000 a=compute payback period for both companies b= which investment is better?

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Sinclair and Bosewell Brothers Inc are both involved in the production of brick. Financial information is as follows Debt @ 12% for Sinclair is 1680000 and Bosewell is 0 Common Stock $10 per share Sinclair is 1120000 and Bosewell is 2800000 Total for both are 2800000 Common share for SInclair are 112000 and Bosewell 280000 Operating Plan Sales (68,000 units @ $25 each) Sinclair 1700000 Bosewell 1700000 Less:Variable Cost Sinclair 1224000(18per unit) Bosewell 816000(12 per unit) Fixed Cost Sinclair 0 Bosewell 318,000 EBIT Sinclair 476,000 Bosewell 566,000 a= If you compare Sinclairs capital structure with Bosewells Operating Plan what is the degree of combined leverage? b=If you combined Bosewells capital structure with Sinclairs Operating Plan what is the degree of combined leverage? c= In part b if the sales double by what percentage will EPS increase?

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Question 1 Which of the following $1,000 face value securities has the highest yield to maturity? a 12% coupon bond selling for $1,100 a 10% coupon bond selling for $1,000 a 5% coupon bond selling for $1,000 a 12% coupon bond selling for $1,000 Question 2 In which of the following situations would you prefer to be making a loan? The nominal interest rate is 25% and the expected inflation rate is 50%. The nominal interest rate is 4% and the expected inflation rate is 1% The nominal interest rate is 9% and the expected inflation rate is 7% The nominal interest rate is 13% and the expected inflation rate is 15% Question 3 Dollars received in the future are worth ___ than dollars received today. The process of calculating what dollars received in the future are worth today is called ___ more; discounting. more; inflating. less; discounting. less; inflating. Question 4 If you expect the inflation rate to be 5% next year and a one-year bond has a yield to maturity of 7%, then the real interest rate on this bond is __ -12% 12% 2% -2% Question 5 In which of the following situations would you prefer to be borrowing? The nominal interest rate is 13% and the expected inflation rate is 15%. The nominal interest rate is 4% and the expected inflation rate is 1%. The nominal interest rate is 9% and the expected inflation rate is 7%. The nominal interest rate is 25% and the expected inflation rate is 50%. Question 6 Given a market interest rate of 10%, the duration of a specific bond is 6 yrs. If market interest rates fall to 8%, the price of the bond will ____ rise by 20%. rise by 12% fall by 20 %. fall by 12 %. Question 7 The economist Irving Fisher, after whom the Fisher Effect is named, explained why interest rates ___ as the expected rate of inflation ___. rise; decreases rise; stabilizes rise; increases fall; increases Question 8 The current yield on a coupon bond is the bond’s ___ divided by its ___. annual return; face value annual return; price annual coupon payment; face value annual coupon payment; price Question 9 When people begin to expect a large stock market decline, the demand for bonds ___ and the interest rate ___. increases; falls decreases; falls decreases; rises increases; rises Question 10 When bond interest rates become more volatile, the demand for bonds ___ and the interest rate ___. decreases; falls increases; rises decreases; rises increases; falls Question 11 Diversification benefits an investor by ___ increasing liquidity. increasing wealth. reducing risk. increasing expected return. Question 12 When the demand for bonds ___ or the supply of bonds ___, interest rates rise. increases; increases decreases; increases decreases; decreases increases; decreases Question 13 Which of the following is true for a coupon bond? When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. The price of a coupon bond and the yield to maturity are positively related. The yield to maturity is greater than the coupon rate when the bond price is above the par value. All of the above are true. Question 14 When a bond’s price falls, its yield to maturity ___ and its current yield ___. rises; falls falls; rises falls; falls rises; rises Question 15 The demand for an asset rises if ___ falls. its expected return relative to other assets its risk relative to other assets wealth its liquidity relative to other assets Question 16 As the price of a bond ___ and the expected return ___, bonds become more attractive to investors and the quantity demanded rises. falls; rises falls; falls rises; rises rises; falls Question 17 Factors that determine the demand for bonds include changes in the ___ wealth of investors. expected returns on bonds relative to alternative assets. risk of bonds relative to alternative assets. all of the above Question 18 Reinvestment risk is the risk that ___ a bond’s issuer may fail to make the future coupon payments and an investor will have no cash to reinvest. a bond’s future coupon payments may have to be invested at a rate lower than the bond’s yield to maturity. an investor’s holding period will be short and equal in length to the maturity of the bonds he or she holds. a bond’s value may fall in the future. Question 19 The concept of ___ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. deflation interest future value present value Question 20 The interest rate that equates the present value of the cash flow received from a debt instrument with its market price today is the ___ discount rate. yield to maturity. real interest rate. simple interest rate. Question 21 If a $5,000 coupon bond has a coupon rate of 13%, then the coupon payment every year is $650. $130. $13. none of the above Question 22 If the interest rates on all bonds rise from 5% to 6% over the course of the year, which bond would you prefer to have been holding? a bond with 5 years to maturity a bond with 20 years to maturity a bond with 10 years to maturity a bond with 1 year to maturity Question 23 The Fisher Equation states that ___ the nominal interest rate equals the real interest rate plus the expected rate of inflation. the real interest rate equals the nominal interest rate minus the expected rate of inflation. the nominal interest rate equals the real interest rate minus the expected rate of inflation. Both A and B are true. Question 24 With an interest rate of 5%, the present value of $100 received one year from now is approximately ___. $105. $100. $90. $95. Question 25 The return on a 5% coupon bond that initially sells for $1,000 and sells for $1,100 one year later is ___ 5% 15% 10% 14%

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Security F has an expected return of 10.9 percent and a standard deviation of 23 percent per year. Security G has an expected return of 16.3 percent and a standard deviation of 57 percent per year.

Required:

(a)

What is the expected return on a portfolio composed of 32 percent of security F and 68 percent of security G?

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Shares of common stock of the Samson Co. offer an expected total return of 16.0 percent. The dividend is increasing at a constant 5.3 percent per year. The dividend yield must be:

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Question 32 1. Which one of the following statements is correct concerning a firm’s fixed assets? Answer The market value is the expected selling price in today’s economy.

The market value is affected by the accounting method selected.

The market value is equal to the initial cost minus the depreciation to date.

The book value is equal to the market value minus the accumulated depreciation.

The book value is the greater of the initial cost or the current mar

Question 33 1. Common-size financial statements present all balance sheet account values as a percentage of: Answer the forecasted budget.

sales.

total equity.

total assets.

last year’s account value.

0.5 points Question 34 1. Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? Answer Du Pont rate

External growth rate

Sustainable growth rate

Internal growth rate

Cash flow rate

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Question 23 1. Which one of the following has nearly the same meaning as free cash flow? Answer Net income

Cash flow from assets

Operating cash flow

Cash flow to shareholders

Addition to retained earnings

Question 29 1. A corporation: Answer is ultimately controlled by its board of directors.

is a legal entity separate from its owners.

is prohibited from entering into contractual agreements.

has its identity defined by its bylaws.

has its existence regulated by the rules set forth in its charter

Question 31 1. Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns? Answer Average tax rate

Variable tax rate

Marginal tax rate

Absolute tax rate

Contingent tax rate

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Question 36 1. Tasty Dee-Lite has current liabilities of $6,630, net working capital of $2,180, inventory of $2,750, and sales of $36,800. What is the quick ratio? Answer 0.76

0.84

0.91

1.09

1.19

0.5 points Question 37 1. Today, you deposit $2,400 in a bank account that pays 4 percent simple interest. How much interest will you earn over the next 5 years? Answer $96.00

$101.15

$480.00

$492.16

$519.97

Question 39 1. Travis is buying a car and will finance it with a loan which requires monthly payments of $265 for the next 4 years. His car payments can be described by which one of the following terms? Answer Perpetuity

Annuity

Consol

Lump sum

Factor

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Question 18 1. All things equal, which one of the following statements is true concerning annuities? Answer An ordinary annuity is more valuable than an annuity due over any period regardless of interest rates..

A decrease in the number of payments increases the future value of an annuity due over a specific time pjeriod.

An annuity with payments at the beginning of each period without interest rate changes is called an ordinary annuity.

An increase in the discount rate decreases the present value and increases the future value of an annuity.

Question 21 1. Capital budgeting includes the evaluation of which of the following? Answer Size of future cash flows only

Size and timing of future cash flows only

Timing and risk of future cash flows only

Risk and size of future cash flows only

Size, timing, and risk of future cash flows

Question 22 1. Cash flow from assets is defined as: Answer the cash flow to shareholders minus the cash flow to creditors.

operating cash flow plus the cash flow to creditors plus the cash flow to shareholders.

operating cash flow minus the change in net working capital minus net capital spending.

operating cash flow plus net capital spending plus the change in net working capital.

cash flow to shareholders minus net capital spending plus the change in net working capital.

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For this question, all rates are semiannually compounded. If the five-year spot rate is 4% and the nine-year spot rate is 4%, what is the four-year rate, five years forward?

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“Rating Agencies” Please respond to the following: From the e-Activity, determine which of the two debt ratings you researched is the most accurate. Defend your response. Discuss steps a company with a less-than-favorable debt rating could take to mitigate the possible consequences of that rating. Provide specific examples to support your response.

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You recently purchased a stock that is expected to earn 12% in a booming economy, 8% in a normal economy and lose 5% in a recessionary economy. There is a 15% probability of a boom, a 75% chance of a normal economy, and a 10% chance of a recession. What is your expected rate of return on this stock?

6.45% 8.30% 5.00% 7.65% 7.30%

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How is relevant costing used in decision making? What would the relevant costs be in deciding whether to discontinue a segment of business? What would the relevant costs be in deciding how to optimize use of a constrained resource? please add the reference or use your own word.

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A retirement plan guarantees to pay you or your estate a fixed amount for 25 years. At the time of retirement you willhave $100,000 to your credit in the plan. The plan anticipates earning 7% interest annually over the period you receive benefits. How much will your annual benefits be assuming the first payment occurs one year from your retirement date?

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Rickett, Inc. has no debt outstanding and a total market value of $173,000. Earning before interest and taxes, EBIT, are projected to be $16,000 if economic conditions are normal. If there is strong expansion in the economy, the EBIT will be 34.5 percent higher. If there is a recession, then EBIT will be 69 percent lower. Rickett is considereing a $69,000 debt issue with a 5 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 3,000 shares outstanding. Rickett has a market-to-book of 1.0. The firm has a tax rate of 35 percent. (a) Return on equity, ROE, for the recession, normal, and expansion scenarios before any debt is issued are ____ percent, _____ percent, and _____ percent, respectively (round to 2 decimal places) If the economy enters a recession or expands, ROE will change by _____ percent or _______percent, resprectively. (negative amount should be indicated with minus sign, round to 2 decimals) (b) Now assume that Rickett goes through with the proposed recapitaliztion. Return on equity, ROE, for the recession, normal, and expansion scenarios are _____ percent, ______ percent, and ______ percent, respectively. If the economy enteres a recession or expands, ROE will change by ______ percent or _______ percent, respectively. (negative amount should be indicated by a minus sign, round to 2 decimal places)

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Which of the following statements is correct? All else the same, an investor will require less return to invest in a callable bond than one that is not callable. All else the same, an investor will require more return to invest in a callable bond than one that is not callable. The call feature does not impact the return that investors demand. We would need to know the current level of interest rates to answer this question.

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The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $20. The unit cost of the giftware is $10.

Year

Unit Sales

1

32,000

2

40,000

3

14,000

4

8,000

Thereafter

0

It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (year-0) investment in working capital of .20 Afâ 32,000 Afâ $20 = $128,000. Plant and equipment necessary to establish the Giftware business will require an additional investment of $210,000. This investment will be depreciated using MACRS and a 3-year life. After 4 years, the equipment will have an economic and book value of zero. The firm’s tax rate is 35%. What is the net present value of the project? The discount rate is 10%. (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

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You purchase a Jan 2014 call on on IBM stock for $6.20 At the same time you sell a put on IBM stock with a strike price of $180 for $4.35 What is your net profit or loss if you cancel both options when the price of IBM stock is a) $190 b) $220 c) $170

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You are provided the following working capital information for the Ridge Company: Ridge Company

Account

$

Inventory

$12,890

Accounts receivable

12,800

Accounts payable

12,670

Net sales

$124,589

Cost of goods sold

99,630

Cash conversion cycle: What is the cash conversion cycle for Ridge Company? 38.3 days, 129.9 days, 83.5 days, 46.4 days

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Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,482,637. have a life of five years, and would produce the cash flows shown in the following table. YEAR

CASH FLOW

1

$500,555

2

-236,328

3

870,192

4

699,045

5

714,495

What is the NPV if the discount rate is 15.78 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) NPV is

$

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Your client has been given a trust fund valued at $1 million. She cannot access the money until she turns 68 years old, which is in 12 years. At that time, she can withdraw $30,000 per month. If the trust fund is invested at a 7% interest rate, how many months will it last your client once she starts to withdraw the money?

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Best Buy reported the following numbers (in millions) for the years ending February 2011 and 2012.

2011

2012

Net income

$

1,277

Dividends

237

Total assets

$

Total equity

18,302

17,849

6,302

6,602

Requirement 1: What are the internal and sustainable growth rates? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)

Internal growth rate

%

Sustainable growth rate

%

Requirement 2: What are the internal and sustainable growth rates using ROE Afâ b and (ROA Afâ b) and the end of period equity (assets)? (Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)

Internal growth rate

%

Sustainable growth rate

%

Requirement 3: What are the growth rates if you use the beginning of period equity in this equation? (Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)

Internal growth rate

%

Sustainable growth rate

%

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Bond A Bond B Coupon Rate 5% 14% Years-to-Maturity 10 10 Yield-to-Maturity 7% 7% Interest Payments Semi-Annual Semi-Annual

If the interest rates fall by 2%, what is the percentage price change of these bonds? with work

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Cranberry, Inc. has sales of $224,700, cost of goods sold of $102,500, net profit of $9,800, fixed assets of $84,200, and current assets of $8,100. What is the total asset turnover rate?

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what differentiates the portfolios of a money market mutual fund, a commercial bank, a savings and loan association, and a life insurance company?

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A deposit of $390 earns the following interest rates:

a.

9 percent in the first year.

b.

7 percent in the second year.

c.

6 percent in the third year.

What would be the third year future value?

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Demonstrate the differences resulting from a $1000 tax credit versus a $1000 tax deduction for a single taxpayer in the 25% tax bracket with $40,000 of pre-tax income. Please explain and show work. Thanks!

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Determine the annual repayment schedule for the first two years (i.e. interest, principal payment, and balance owed) for each of the following. (Assume that only one payment is made annually.) Compare the payments required by each mortgage. What conclusions can you draw? a) A $100,000 conventional mortgage for 25 years at 5 percent b) A $100,000 conventional mortgage for 20 years at 5 percent c) A $100,000 conventional mortgage for 25 years at 6 percent do not copy and paste other Transtutors answer, my numbers are different! Also do not copy and paste from any other website, I want to be able to do that in my word doc and print it and the bold does not copy!

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Dakota Corporation 15-year bonds have an equilibrium rate of return of 10 percent. For all securities, the inflation risk premium is 1.50 percent and the real interest rate is 3.00 percent. The security’s liquidity risk premium is 0.95 percent and maturity risk premium is 1.55 percent. The security has no special covenants. Calculate the bond’s default risk premium.

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You have been asked by the CFO of your company to evaluate the proposed acquisition of a new manufacturing machine. The machine’s purchase price is $81,000, and it would cost another $12,500 to modify it so that it can be used by your firm. The machine, which falls into the MACRS 5-year class, would be sold after five years for $3,000. (Year 1, 20%, 2, 32% 3, 19% 4, 12% 5,11% 6, 6%.) Use of the machine would require an increase in net working capital (more expensive raw materials) of $2,000. The machine would have no effect on revenues, but it is expected to save the firm $33,000 per year in before-tax operating costs, mainly labor. The firm’s marginal tax rate is 35 percent, and its required rate of return for such investments is 14 percent. Should the machine be purchased? Show calculations and explain your answer

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In this assignment, you will learn how to calculate risk and return, and how to interpret the results. The focus of this assignment is the Capital Asset Pricing Model (CAPM). After completing the assignment, you will be able to apply the CAPM to any stock or portfolio valuation, understand the concept of the beta of a stock, and understand a portfolio. Any help would be appreciated

Instructions Answer the following questions and complete the following problems, as applicable: You may solve the following problems algebraically, or you may use a financial calculator or Excel spreadsheet. If you choose to solve the problems algebraically, be sure to show your computations. If you use a financial calculator, show your input values. If you use an Excel spreadsheet, show your input values and formulas. Note: In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer. 1. “Why is expected return considered forward-looking? What are the challenges for practitioners to utilize expected return” (Cornett, Adair, & Nofsinger, 2014, p. 250)? 2. “Describe how different allocations between the risk-free security and the market portfolio can achieve any level of market risk desired” (Cornett, Adair, & Nofsinger, 2014). 3. Refer to the table below to complete this question. “Compute the expected return given these three economic states, their likelihoods, and the potential returns” (Cornett, Adair, & Nofsinger, 2014). 4. “If the risk-free rate is 6 percent and the risk premium is 5 percent, what is the required return” (Cornett, Adair, & Nofsinger, 2014, p. 251)? 5. “The average annual return on the Standard and Poor’s 500 Index from 1986 to 1995 was 15.8 percent. The average annual T-bill yield during the same period was 5.6 percent. What was the market risk premium during these 10 years” (Cornett, Adair, & Nofsinger, 2014, p. 251)? 6. “Hastings Entertainment has a beta of 0.24. If the market return is expected to be 11 percent and the risk-free rate is 4 percent, what is Hastings’ required return” (Cornett, Adair, & Nofsinger, 2014, p. 251)? Use the capital asset pricing model to calculate Hastings’ required return. 7. Calculate the beta of your portfolio, which comprises the following items: (a) Olympic Steel stock, which has a beta of 2.9 and comprises 25 percent of your portfolio, (b) Rent-a-Center stock, which has a beta of 1.5 and comprises 35 percent of your portfolio, and (c) Lincoln Electric stock, which has a beta of 0.2 and comprises 40 percent of your portfolio (Cornett, Adair, & Nofsinger, 2014). ECONOMIC STATE

PROBABILITY

RETURN

Fast Growth

0.30

40%

Slow Growth

0.50

10%

Recession

0.20

?25%

Submit your completed assignment as an attachment in the assignment area. You may use either a Word document or an Excel spreadsheet for your work, but not both. Prior to submitting your assignment, review the Estimating Risk and Return Scoring Guide to ensure you have met all of the requirements and as a self-assessment of your work.

Reference Cornett, M. M., Adair, T. A., & Nofsinger J. (2014). M: Finance (2nd ed.). New York, NY: McGraw-Hill.

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Assume the following stock quote for DRK Enterprises, Inc., at your favorite Web site. You also found that the stock paid an annual dividend of $.65, which resulted in a dividend yield of 1.20 percent. Assume the company has 44 million shares of stock outstanding and a PE ratio of 16.5. DAILY

YTD

52 WEEK

Company

Symbol

Vol

Close

Chg

%Chg

%Chg

High

Low

%Chg

DRK Enterprises

DRK

18,649,130

??

.26

-0.39%

8.73%

78.19

51.74

27.4%

What was net income for the most recent four quarters?

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you have an investment with 16 quarterly cash flow of 2000. The first payment is 3 months from today. If the EAR is 9%, what is the PV of this investment?

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An investment will pay you $36,000 in 12 years. If the appropriate discount rate is 6.3 percent compounded daily, what is the present value?

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Barbara is considering investing in a stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Using the table of returns and probabilities below, find Probability

Return

Boom

0.5

25.00%

Good

0.1

15.00%

Level

0.3

10.00%

Slump

0.1

-5.00%

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Barbara is considering investing in a stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Using the table of returns and probabilities below prob Return

Boom

0.6

25.00%

Good

0.1

15.00%

Level

0.1

10.00%

Slump

0.2

-5.00%

What is the expected return on Barbara’s investment? (Round answer to 3 decimal places, e.g. 0.076.)

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You are hoping to buy a house in the future and recently received an inheritance of $22,000.00. You intend to use your inheritance as a down payment on you house. a) Ia) If you put your inheritance in an account that earns 7 percent interest compounded annually, how many years will it be before your inheritance grows to $35,000? b) Ib) If you let your money grow for 10.5 years at 7 percent, how much will you have? c) c) How long will it take your money to grow to $35,000.00 if you move into an account that pays 3 percent compounded annually? How long will it take your money to grow $35,000.00 if you move it into an account that pays 11 percent? d) D) What does all this tell you about the relationship among interest rates, time, and future sums?

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Hungry Kids 2012 Income Statement Net sales

$

5,800

Cost of goods sold

4,200

Depreciation

740

Earnings before interest and taxes

$

860

Interest paid

155

Taxable Income

$

705

Taxes

224

Net income

$

481

Dividends

$

88

Addition to retained earnings

$

393

Hungry Kids 2012 Balance Sheet

2012 Cash

2012

$

60

Accounts payable

Accounts rec.

580

Long-term debt

Inventory

910

Common stock

1,550

Retained earnings

Total

$

Net fixed assets

$

1,650 1,680

$

2,100

3,920

7,800

Total assets

$

9,350

Total liabilities & equity

$

9,350

Hungry Kids is currently operating at full capacity. The profit margin and the dividend payout ratio are held constant. Net working capital and fixed assets vary directly with sales. Sales are projected to increase by 6 percent. What is the external financing need? $57 $58 $59 $45 $44

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Equipment trust certificates are Question 1 options: a)

riskier than convertible bonds

b)

secured debt obligations

c)

a type of debenture

d)

bonds with low credit ratings

Income taxation on the interest earned from an investment in a zero coupon bond occurs when the bond matures. Question 2 options: a)

True

b)

False

Calculation of the returns earned on a high-yield security should include the sale price of bond as well as interest received. true false Question 3 options: Bonds pay a flow of income called “interest.: Question 4 options: a)

True

b)

False

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if there are no excess reserves in the banking system and $1 billion in new reserves are created by the federal reserve, what should happen to the supply of money? would your answer be different if the reserve requirement were 10% instead of 15%?

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The exercise price on one of the First Link Investment corporation’s call option us $15, its exercise value is $22 and its premium is $5. what are the option’s market value and the stock’s current price?

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Given a 3 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,850, $2,050, $2,050, and $2,350.

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Your grandfather invested $1,000 in a stock 27 years ago. Currently the value of his account is $226,000. What is his geometric return over this period?

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If the future value of an ordinary, 11 year annuity is $5,575 and interest rates are 5.5%, what is the future value of the same annuity due?

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Find the present value of $4,600 under each of the following rates and periods. (If you solve this problem with alegbra round intermediate calculations to 6 decimal places, in all cases round your final answer to the nearest penny.) A. 8.9 percent compounded monthly for five years, B. 6.6 percent compounded quarterly for eight years, C. 4.3 percent compounded daily for four years, D. 5.7 percent compounded continuously for three years?

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Joey realizes that he has charged too much on his credit card and has racked up $5,600 in debt. If he can pay $150 each month and the card charges 17 percent APR (compounded monthly), how long will it take him to pay off the debt?

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You have just been offered a job. You have the choice of two different salary arrangements. You can have 55,000 per year for the next two years, payable at the end of each year; or you can have 40,000 per year for the next two years, payable at the end of each year, along with a signing bonus of 25,000 payable today. If the interest rate is 6% compounded monthly, which do you prefer? With the work please…….

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Johnson Family Care Inc. is a large ambulatory care center that provides comprehensive 24-hour primary and specialty care to a large suburban population in Pennsylvania. The center recently purchased new clinical laboratory equipment for $1.1 million and spent $22,000 to renovate a center room to accommodate the new equipment. The useful life of the equipment is estimated to be ten years, after which it can be sold for $75,000. Johnson uses a straight-line method to calculate book depreciation and pays tax at a rate of 40 percent. The equipment falls into the MACRS seven-year class. a. What annual depreciation expense will be reported on the income statement for the center? b. What annual depreciation expense will be reported for tax purposes? c. Suppose Johnson sells the laboratory equipment at the end of Year 4 for $400,000. What impact would this have on the taxes paid by the center?

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The Klaven Nursing Home has taxable income of $750,000. The home’s depreciation expense is $200,000. Klaven is 100 percent equity financed, and it faces a 40 percent tax rate. a. What is the home’s after-taxincome?

please show the calculations

b. What is its net cash flow?

please show the calculations

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Oakdale Fashions, Inc., had $400,000 in 2012 taxable income. Using the tax schedule in Table 2.3 calculate the company’s 2012 income taxes.. Income taxes

$

What is the average tax rate? (Round your answer to 2 decimal places.)

Average tax rate

%

What is the marginal tax rate?

Marginal tax rate

%

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Need help understanding The Federal Reserve has decided that interest rates need to be increased to maintain low inflation in the economy. To accomplish this goal, the Fed has determined that the money supply needs to be decreased by $188 billion. It wants to implement this decrease by working through reserves at financial institutions. Reserve requirement is 6%. By how much must reserves be decreased.

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Phil can afford $200 a month for 5 years for a car loan. If the annual interest rate is 7.5 percent, how much can he afford to borrow to purchase a car?

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“Policy Changes” Please respond to the following: Recommend three policy changes that would make the Federal Reserve’s job of controlling U.S. interest rates easier. Explain your reasoning.

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Major Manuscripts, Inc. 2012 Income Statement Net sales

$

8,800

Cost of goods sold

7,265

Depreciation

320

Earnings before interest and taxes

$

1,215

Interest paid

80

Taxable Income

$

1,135

Taxes

405

Net income

$

730

Dividends

$

292

Major Manuscripts, Inc. 2012 Balance Sheet

2012 Cash

2012

$

2,270

Accounts payable

Accounts rec.

980

Long-term debt

Inventory

3,700

Common stock

6,950

Retained earnings

Total

$

Net fixed assets

$

1,170 380

$

3,900

5,230

3,730

Total assets

$

10,680

Total liabilities & equity

$

10,680

If Major Manuscripts, Inc., decides to maintain a constant debt-equity ratio, what rate of growth can it maintain assuming that no additional external equity financing is available? 5.04 percent 9.14 percent 7.83 percent 4.58 percent 4.28 percent

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Major Manuscripts, Inc. 2012 Income Statement Net sales

$

9,100

Cost of goods sold

7,415

Depreciation

340

Earnings before interest and taxes

$

1,345

Interest paid

25

Taxable Income

$

1,320

Taxes

449

Net income

$

871

Dividends

$

252

Major Manuscripts, Inc. 2012 Balance Sheet

2012 Cash

2012

$

2,290

Accounts payable

Accounts rec.

980

Long-term debt

Inventory

3,900

Common stock

7,170

Retained earnings

Total

$

Net fixed assets

$

2,750 250

$

2,500

5,600

3,930

Total assets

$

11,100

Total liabilities & equity

$

11,100

Major Manuscripts, Inc., does not want to incur any additional external financing. The dividend payout ratio is constant. What is the firm’s maximum rate of growth? 5.28 percent 6.09 percent 18.70 percent 5.91 percent 8.95 percent

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On March 11, 20XX, the existing or current (spot) 1-, 2-, 3-, and 4-year zero coupon Treasury security rates were as follows:

1R1 = 0.60%, 1R2 = 1.25%, 1R3 = 1.65%, 1R4 = 1.80%

Using the unbiased expectations theory, calculate the 1-year forward rates on zero coupon Treasury bonds for years 2, 3, and 4 as of March 11, 20XX.

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Major Manuscripts, Inc. 2012 Income Statement Net sales

$

9,100

Cost of goods sold

7,515

Depreciation

340

Earnings before interest and taxes

$

1,245

Interest paid

30

Taxable Income

$

1,215

Taxes

461

Net income

$

754

Dividends

$

190

Major Manuscripts, Inc. 2012 Balance Sheet

2012 Cash

2012

$

3,700

Accounts payable

Accounts rec.

1,010

Long-term debt

Inventory

4,000

Common stock

8,710

Retained earnings

Total

$

Net fixed assets

$

3,320 260

$

4,100

5,730

4,700

Total assets

$

13,410

Total liabilities & equity

$

13,410

Major Manuscripts, Inc., is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 10 percent? $129 $389 $620 $649 $70

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You are looking to buy a car. You can afford $460 in monthly payments for four years. In addition to the loan, you can make a $1,100 down payment. If interest rates are 7.25 percent APR, what price of car can you afford?

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A loan is offered with monthly payments and a 7.50 percent APR. What’s the loan’s effective annual rate (EAR)?

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1.If FCFE is greater than FCFF, then net debt issuance must be greater than after-tax interest expense. a) True b) False

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How long will it take $2,000 to reach $4,000 when it grows at 10 percent per year?

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1) A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows:

Year

Cash Flow

0

“?o$

29,000

1

13,000

2

16,000

3

12,000

What is the NPV for the project if the required return is 12 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

At a required return of 12 percent, should the firm accept this project?

Yes No

What is the NPV for the project if the required return is 24 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

At a required return of 24 percent, should the firm accept this project?

Yes No 2) Garage, Inc., has identified the following two mutually exclusive projects:

Year

Cash Flow (A)

0

“?o$

Cash Flow (B) 29,500

“?o$

29,500

1

14,900

4,550

2

12,800

10,050

3

9,450

15,700

4

5,350

17,300

a-1

What is the IRR for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

IRR Project A

%

Project B

%

a-2

Using the IRR decision rule, which project should the company accept?

Project A Project B

a-3

Is this decision necessarily correct?

Yes No

b1

If the required return is 10 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

NPV Project A

$

Project B

$

b-2

Which project will the company choose if it applies the NPV decision rule?

Project A Project B

c.

At what discount rate would the company be indifferent between these two projects? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Discount rate

%

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1. The FCFF can be used for many purposes. Given the information below, what is the amount of dividends paid by the firm? FCFF = $80; Stock repurchases = $50; investment in net fixed assets = $80; Net income = $50; net purchases of non-operating short-term investments = $5; No net debt repayments; After-tax interest expense = $10; taxes = $20 a) $0.00 b) $5.00 c) $15.00 d) $50.00 e) $65.00

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A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $1,250 per month for the next 3 years and then $500 per month for two years after that. If the bank is charging customers 12% APR, how much would it be willing to lend the business owner?

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Starting with $2,000 on March 3, you deposit $500 23 days from March 3, withdraw $800 69 days from March 3, and deposit $600 121 days from March 3. If your final balance is $2,458 150 days from March 3, what is the simple interest rate for your account? Use the Banker’s rule.

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If you start making $115 monthly contributions today and continue them for 6 years, what is their present value if the compounding rate is 12% APR? What is the present value of this annuity?

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Step into the shoes of a financial analyst. Discuss which steps of the capital budgeting process you would find the most challenging and state why. Steps include 1. Identification 2. Development 3. Selection 4. Implementation 5. Follow-Up

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Stewart Inc.’s latest EPS was $3.50, its book value per share was $22.75, it had 215,000 shares outstanding, and its debt ratio was 46%. How much debt was outstanding?

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Stop and Go has a 5 percent profit margin and a 44 percent dividend payout ratio. The total asset turnover is 1.66 and the debt-equity ratio is .50. What is the sustainable rate of growth? 8.47 percent 5.91 percent 6.12 percent 7.49 percent 6.52 percent

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1. Which of the following is (are) TRUE? Why? a)The weighted average cost of debt using market values is less than the cost of debt using book values because the price of the debt is below the amount owed b)If beta increases from the baseline assumption of 1.20, the cost of equity using the CAPM model will fall. c)Assuming debt and equity costs do not rise as more debt is added to the capital structure (i.e., the amounts of debt and equity is called capital structure), it would make sense for the firm to have more debt to reduce its WACC. d)b) and c) e)a) and b) f)a) and c) g)All of the above are TRUE

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1. Which of the following statements are correct? I. the SML approach is dependent upon a reliable measure of a firm’s unsystematic risk II. the SML apporahc can be applied to firms that retain all of their earnings III. The SML approach assumes a firm’s future risks are similar to its past risks IV. The SML approach assumes the reward-to-risk ratio is constant a. I and II only b. II and IV only c. III and IV only d. I, II and III only e. II, III, and IV only 2.The weighted average cost of capital for a firm may be dependent upon the firm’s: I. rate of growth II. debt-equity ratio III. preferred dividend payment IV. retention ratio a. I and III only b. II and IV only c. I, II and IV only d. I, III, IV only e. I, II, III, and IV 3. Costs that decrease as a firm acquires additional current assets are called __________ costs. a. carrying b. shortage c. debt d. equity e. payables 4. The wire house purchases its inventory one quarter prior to the quarter of sale. The purchase price is 55 percent of the sales price. The accounts payable period is 45 days. The accounts payable balance at the beginning of quarter one is $62,000. What is the amount of the expected disbursments for quarter two given te following expected quarterly sales? Quarter 1 ……………………..$32,000 Quarter 2………………………$36,000 Quarter 3………………………$53,000 Quarter 4……………………….$54,000 a. $20,500 b. $24,725 c. $24,250 d. $24,475 e. $26,675

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1. One year ago, you purchased 200 shares of a stock at a price of $54.18 a share. Today, you sold those shares for $40.25 a share. During the past year, you received total dividends of $164 while inflation averaged 4.2 percent. What is your approximate real rate of return on this investment? A. -24.20 percent B. -28.40 percent C. -20.00 percent D. 20.00 percent E. 24.20 percent 2 . A stock had annual returns of 3.6 percent, -8.7 percent, 5.6 percent, and 11.1 percent over the past four years. Which one of the following best describes the probability that this stock will produce a return of 20 percent or more in a single year? A. less than 0.1 percent B. less than 0.5 percent but greater than 0.1 percent C. less than 1.0 percent but greater the 0.5 percent D. less than 2.5 percent but greater than 1.0 percent E. less than 5 percent but greater than 2.5 percent 3. A stock has returns of 18 percent, 11 percent, -21 percent, and 6 percent for the past four years. Based on this information, what is the 95 percent probability range of returns for any one given year? A. -13.56 to 20.56 percent B. -24.60 to 31.80 percent C. -30.62 to 37.62 percent D. -47.68 to 54.68 percent E. -71.73 to 71.73 percent

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1.Last year the price for thermometer covers in a pediatrician’s office was $.05 each. This year, the covers cost $.06 each. If the office purchased 10,000 thermometer covers this year, what is the price variance? 2.Using the information in the table below, calculate the amount of the favorable price variance. Budgeted

Actual

Volume

200,000

190,000

Cost per unit

$40

$37

Cost

$8,000,000

$7,030,000

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1. Using the information below, can the firm grow sales at 10% without having to raise external capital (e.g., new stock and short- and long-term debt) to fund growth? There is no excess capacity Initial sales in time 0 = $150 Spontaneous assets (assets that increase proportionately with sales) = $100 Spontaneous liabilities = $10 Profit margin in time 0 and time 1 = 10% Retention ratio in time 0 and time 1 = 50% a)Yes b)No

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1. Use the information below to determine the amount of interest expense Sales = $100.00; net income = $30.00; Depreciation and amortization = $10.00; EBIT = $40.00; Tax rate = 20% a) $2.00 b) $2.50 c) $4.00 d) $5.00 e) $18.00

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7. An investment project has annual cash inflows of $4,600, $5,700, $6,500, and $7,800, and a discount rate of 13 percent.

Required: What is the discounted payback period for these cash flows if the initial cost is $8,000? (Do not round your intermediate calculations.)

rev: 09_18_2012 2.63 years 1.38 years 3.76 years 0.88 years 1.88 years

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A 5-year 4% A-rated corporate bond’s yield to maturity is 5%. Price = “?”?”?”?”?”?”?”?”?”? The bond gets downgraded to BB-. It’s yield is likely to be “? (lower/higher)”?”?”? than 4% and “? (lower/higher)”?”? than 5%, and the price is likely to be “?”?”?less/greater”?”?”?.. than “?”?”?”?”?”?”?”?”?”?”?”?”?”? .

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39. The Time Clock Co. is trying to decide which one of two projects it should accept. Both projects have the same start-up costs. Project 1 will produce annual cash flows of $61,000 a year for seven years. Project 2 will produce cash flows of $45,000 a year for fourteen years. The company requires an 11 percent rate of return. Which project should the company select and why?

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41. How much money does Melinda need to deposit into her investment account today if she wishes to withdraw $8,000 a year for twenty years? She expects to earn an average rate of return of 8.5 percent.

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4. (TCO 5) At the time of expiration, the premium (price) on a call option (Points : 4) reflects risk in addition to intrinsic value. will be equal to the intrinsic value. may be above or below the intrinsic value. None of the above

Question 5. 5. (TCO 5) Which of the following is not one of the primary categories of commodities? (Points : 4) Food and fiber Wood Gemstones All of the above are primary categories

Question 6. 6. (TCO 5) In order to effectively hedge a stock portfolio, the portfolio manager must know the total dollar value of the portfolio, the current index futures price, and (Points : 4) the number of contracts available in the market. the portfolio P/E ratio. the relative volatility of the portfolio to the market. More than one of the above

Question 7. 7. (TCO 6) The difference between a load fund and a no-load fund is that (Points : 4) no-load funds do not charge commissions and are sold directly by the investment company. load funds do not charge commissions and are sold directly by the investment company. no-load funds charge higher commissions than load funds. no-load funds charge lower commissions than load funds.

Question 8. 8. (TCO 6) Investing directly in the international equities markets refers to buying shares (Points : 4) of multinational corporations. of foreign companies. of internationally invested mutual funds. More than one of the above

Question 9. 9. (TCO 6) Historically, the best time to buy gold and silver is (Points : 4) when the stock market is declining. when there is significant political instability or anticipation of war. during periods of high inflation. All of the above

Question 10. 10. (TCO 7) If you took all the possible investments that investors could acquire and determined the optimum basket of investments, you would come up with point _____ on the capital market line. (Points : 4)

RF K M Z

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a 4-year 4% semiannual coupon bond with a face value of $100. Compute the current yield and the yield to maturity for the bond assuming the price is: A. P = 105 B. P = 97

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1) Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,060,000 in annual sales, with costs of $759,000. The project requires an initial investment in net working capital of $280,000, and the fixed asset will have a market value of $270,000 at the end of the project.

If the tax rate is 35 percent, what is the project’s year 1 net cash flow? Year 2? Year 3? (Use MACRS) (Enter your answers in dollars, not millions of dollars, i.e. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Years

Cash Flow

Year 0

$

Year 1

$

Year 2

$

Year 3

$

If the required return is 13 percent, what is the project’s NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

2) Dog Up! Franks is looking at a new sausage system with an installed cost of $500,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $74,000. The sausage system will save the firm $180,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $33,000. If the tax rate is 35 percent and the discount rate is 9 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

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1. Please match the items on the left with the results on the right. Items Result 1. Less competition A. Increases agency costs 2. Compensate managers like shareholders (owners) B. Reduces agency costs 3. Have large shareholders who own a large amount of stock who are activists a)1 with A, 2 with A, 3 with B c) 1 with B, 2 with A, 3 with B b)1 with B, 2 with A, 3 with A d) 1 with A, 2 with B, 3 with B

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1. If the net profit margin is 5%, asset turnover is 2.00, the equity multiplier (also called financial leverage ratio) is 4.00, and the dividend payout ratio is 60%, what is the theoretical sustainable growth rate? a)40.0% b)20.0% c)10.0% d)24.0% e)15.0% f)16.0%

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1) Ninja Co. issued 13-year bonds a year ago at a coupon rate of 7.9 percent. The bonds make semiannual payments. If the YTM on these bonds is 6.2 percent, what is the current bond price? (Round your answer to 2 decimal places. 2) Bond P is a premium bond with a 12 percent coupon. Bond D is a 7 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 9 percent, and have seven years to maturity. What is the current yield for bond P and bond D? (Round your answers to 2 decimal places. (e.g., 32.16))

Current yield Bond P

%

Bond D

%

If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P and bond D? (Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)))

Capital gains yield Bond P

%

Bond D

%

3) Page Enterprises has bonds on the market making annual payments, with ten years to maturity, and selling for $968. At this price, the bonds yield 6.90 percent. What must the coupon rate be on the bonds? (Round your answer to 2 decimal places. 4) A Japanese company has a bond outstanding that sells for 89 percent of its A??Y100,000 par value. The bond has a coupon rate of 5.60 percent paid annually and matures in 18 years. What is the yield to maturity of this bond? (Round your answer to 2 decimal places 5) Ponzi Corporation has bonds on the market with 16.5 years to maturity, a YTM of 6.30 percent, and a current price of $1,036. The bonds make semiannual payments. What must the coupon rate be on these bonds? (Round your answer to 2 decimal places

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1. If the risk free rate rises and the market return assumption and cash flows are unchanged, then the value of which of the firms listed below will decline most? (Note: this is an important concept to help you understand the CAPM (SML) formula for calculating the cost of equity and how it relates to value “?o most students in the country probably do not learn this”? but it is important!) a) Firm A with beta = 0.5 b) Firm B with beta = 0.8 c) Firm C with beta = 1.0 d) Firm D with beta = 1.2

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1. If the risk free rate rises and the market return assumption and cash flows are unchanged, then the value of which of the firms listed below will decline most? a) Firm A with beta = 0.5 b) Firm B with beta = 0.8 c) Firm C with beta = 1.0 d) Firm D with beta = 1.2

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1. If a stock is currently trading on the market for $27, it’s price one year ago was $20 and it just paid a dividend of $1.80, what is its dividend yield and what is its total return?

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1. If today’s price is $10, and dividends today are $0.50, ROE is 15%, and the payout ratio is 30%, what is the cost of equity using the DCF (DDM) model?

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b) Assuing the bond is bought at market level, given the bond information and actual reinvestment rates, calculate the realized rate of return Face Value

$1,000

Coupon Rate

5%

Maturity

5

Payment

Annual

1F2

10%

2F3

9%

3F4

11%

4F5

9%

c)What’s the Yield to maturity of the following bond if it is bought at market level? Face Value

$1,000

Coupon Rate

5%

Maturity

5

Payment

Annual

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Balance Sheet and Income Statement Items $121.251 Cash, short-term, and long-term marketable securities $176.064 Total assets $118.210 Total equity $156.508 Sales $41.733 Net income Using end of year values for balance sheet items, the firm’s ROE was 35.3% in fiscal 2012. The firm has an excess of cash and marketable securities on its balance sheet. Using new end of year values for balance sheet items, what would the firm’s ROE have been if it had used $80 billion of its cash and marketable securities to buy back stock (i.e., equity)? Assume cash and marketable securities make no money for the firm and there are no tax implications. a) 10.6% b) 26.7% c) 35.3% d) 43.4% e) 59.6% f) 64.7% g) 67.0% h) 109.2%

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The Baldwin company will sell 100 units (x1000) of capacity from their Bold product line. Each unit of capacity is worth $6 plus $4 per automation rating. The Baldwin company will sell the capacity for 35% off. How much do they receive when the capacity is sold? (Automation rating is 7.0) Select: 1 $1,190,000 $1,870,000 $2,210,000 $3,400,000

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Bond J is a 6 percent coupon bond. Bond K is a 11 percent coupon bond. Both bonds have 9 years to maturity, make semiannual payments, and have a YTM of 7 percent.

Requirement 1: (a)

If interest rates suddenly rise by 5 percent, what is the percentage price change of Bond J?

(Click to select) -27.70% 42.19% -27.72% -26.72% -25.72%

(b)

If interest rates suddenly rise by 5 percent, what is the percentage price change of Bond K?

(Click to select) -25.16% 37.54% -23.16% -25.14% 42.46%

Requirement 2: (a)

If interest rates suddenly fall by 5 percent, what is the percentage price change of Bond J?

(Click to select) 42.17% -31.80% -27.74% -32.48% 42.15%

(b)

If interest rates suddenly fall by 5 percent, what is the percentage price change of Bond K?

(Click to select) -25.18% -73.79% 37.40% 37.52% -4.41%

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Blasco’s has a market value equal to its book value. Currently, the firm has excess cash of $1,332, other assets of $11,674, and equity of $7,200. The firm has 600 shares of stock outstanding and net income of $838. Blasco’s has decided to spend one-third of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?

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You buy a stock for which you expect to receive an annual dividend of $2.10 for the fifteen years that you plan on holding it. After 15 years, you expect to sell the stock for 32.25. What is the present value of a share for this company if you want a 10% return? 5) _______

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Buying Stock with a Market Order You would like to buy shares of Ralph Lauren (RL). The current bid and ask quotes are $85.13 and $85.20, respectively. You place a market buy-order for 500 shares that executes at these quoted prices. How much money did it cost to buy these shares? $42,600.00 $35.00 $42,565.00 $85,165.00

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A bond’s value will be below its maturity value of $1000 if it pays interest of $100 per year and investors require a rate of return of, all other things being equal: A) less than 10% B) exactly 10% C) higher than 10% D) either less than or greater than 10%

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Bond Yields. A bond with face value $1,000 has a current yield of 6% and a coupon rate of 8%. What is the bond price?

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A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent. What was the actual nominal rate of return?

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Brandywine homecare, a not-for-profit business, had revenues of $12 million in 2004. Expenses other than depreciation totaled 75% of revenues, and depreciation expenses was $1.5 million. all revenues were collected in cash during the year and all expenses, other than depreciation, were paid in cash. Suppose the company cahnged its depreciation calculation procedures (Still within GAAP) such that its depreciation expense doubled. How would this affect Brandywine’s income, total profit margin, and cash flow? A) It would not change anything B) It would double everything C) Net income would be 0, Profit would be 0, cash flow would be $3 million D) Net income would be $3 million, profit would be 25% and cash flow would be zero

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Which is correct? The real interest rate is _______________________. The rate charged to the corporations with the best credit rating or least amount of default risk The rate that a security would pay if no inflation were expected over its holding period The rate that a security would pay if the security had no maturity risk None of these statements is a correct definition.

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Which is correct? This is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements. incremental cash flows cash flow analysis pro forma analysis substitutionary analysis

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David and Joan Mead have a home with an appraised value of $180,000 and a mortgage balance of only $90,000. Given that an S&L is wiling to lend money at a loan-to-value ratio of 75 percent, how big a home equity credit line can David and Joan obtain? How much, if any, of this line would qualify as tax-deductible interest if their house originally cost $200,000? 1.

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Give the data below, what is the taxable income for 2009? 2009 Cost of goods sold

$4,878

Interest

238

Dividends

420

Depreciation

789

Change in retained earnings

631

Tax ratge

34%

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Debt Management Ratios Will’s Wheels, Inc. reported a debt-to-equity ratio of .65 times at the end of 2008. If the firm’s total debt at year-end was $5 million, how much equity does Will’s Wheels have? $7.69 million $5 million $65 million $3.25 million

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On December 31, 2009, the balance sheet of Baxter Corporation was as follows: Current Assets Cash Accounts receivable Inventory 25,000 Liabilities Accounts payable $ Notes payable Bonds payable Stockholders’ Equity Preferred stock $ Common stock Paid-in capital Retained earnings 12,000 20,000 50,000 20,000 55,000 25,000 80,000 Prepaid expenses Fixed Assets 12,000 Plant and equipment (gross) $250,000 depreciation 50,000 Less: Accumulated Net plant and equipment 200,000 Total assets $262,000 Total liabilities and stockholders’ equity $262,000 $ 10,000 15,000 Book value and market value (LO2&3) Book value and market value (LO2&3) Sales for 2010 were $220,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was $22,000. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Inter- est expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 2009, balances. The tax rate averaged 20 percent. Two thousand dollars in preferred stock dividends were paid and $8,400 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding. During 2010, the cash balance and prepaid expenses balances were unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 2010, at a cost of $35,000. Accounts payable increased by 25 percent. Notes payable increased $6,000 and bonds payable decreased $10,000, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change. a.Prepare an income statement for 2010. b. Prepare a statement of retained earnings for 2010. c. Prepare a balance sheet as of December 31, 2010.

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It is now December 31, 2011 (t = 0), and a jury just found in favor of a woman who sued the city for injuries sustained in a January 2010 accident. She requested recovery of lost wages plus $850,000 for pain and suffering plus $170,000 for legal expenses. Her doctor testified that she has been unable to work since the accident and that she will not be able to work in the future. She is now 62, and the jury decided that she would have worked for another 3 years. She was scheduled to have earned $35,000 in 2009. (To simplify this problem, assume that the entire annual salary amount would have been received on December 31, 2010.) Her employer testified that she probably would have received raises of 3% per year. The actual payment for the jury award will be made on December 31, 2012. The judge stipulated that all dollar amounts are to be adjusted to a present value basis on December 31, 2012, using a 5% annual interest rate using compound, not simple, interest. Furthermore, he stipulated that the pain and suffering and legal expenses should be based on a December, 31, 2010, date. How large a check must the city write on December 31, 2012? Round your answer to the nearest cent. Finance Calculator

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When dealing with Capital Rationing, Soft Rationing would be ____. Answer limits on funds imposed by the lack of available funds in the capital market

using only cash rather than other hard currencies

limits on funds imposed by management

supply funds only during the Initial Investment

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Credit Risk and Yield Rank the following bonds in order from lowest credit risk to highest risk, all with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 12.25 percent, IB Corporate bond with yield of 4.49 percent, TC Corporate bond with yield of 8.76 percent, and B&O Corporate bond with a yield of 5.99 percent. IB bond, B&O bond, TC bond, JM bond JM bond, TC bond, B&O bond, IB bond JM bond, IB bond, B&O bond, TC bond TC bond, B&O bond, IB bond, JM bond

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The Cougar Corporation has issued 20-year semi-annual coupon bonds with a face value of $1,000. If the annual coupon rate is 10% and the current yield to maturity is 12%, what is the firm’s current price per bond? Answer $850.61

$849.54

$1,170.27

$1,171.59

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You are currently considering an investment in a project in the energy sector. The investment has the same riskiness as Exxon Mobil stock (ticker: XOM). Using the data in Table 13.1 and the table above, calculate the cost of capital using the FFC factor specification if the current risk-free rate is 3% per year. Factor

MSFT

XOM

GE

Average Monthly Return(%)

95% Confidence Band

MKT

0.965

0.808

1.183

0.61

0.34

SMB

-0.295

-0.812

-0.475

0.25

0.2

HML

-0.099

0.196

0.965

0.38

0.22

PR1YR

0.089

0.376

-0.2

0.7

0.29

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If Chester Corp. were to buy all of it’s shares outstanding at its current price, how much would it cost Chester Corp, excluding brokerage fees?

Select: 1

$199 million

$101 million

$1 million

$98 million

Cash Flow Statement Survey

Andrews

Baldwin

Chester

Digby

$3,216

$28,792

$1,380

$1,277

Depreciation

$7,764

$11,033

$18,360

$18,540

Extraordinary gains/losses/writeoffs

$0

$0

$0

$0

Accounts payable

$956

$1,364

$810

$2,355

Inventory

$2,330

($5,852)

($11,764)

($11,256)

Accounts receivable

($411)

($3,019)

$178

($2,677)

Net cash from operations

$13,855

$32,318

$8,964

$8,238

($25,400)

($42,800)

($38,466)

($58,415)

Dividends paid

$0

$0

$0

$0

Sales of common stock

$5,000

$0

$15,944

$21,429

Purchase of common stock

$0

($903)

$0

$0

Cash from long term debt issued

$0

$12,727

$16,353

$24,910

Early retirement of long term debt

$0

$0

$0

$0

Retirement of current debt

($10,300)

($28,397)

($43,452)

($33,940)

Cash from current debt borrowing

$0

$22,040

$32,772

$30,565

Cash from emergency loan

$0

$0

$0

$0

Net cash from financing activities

($5,300)

$5,467

$21,616

$42,965

Net change in cash position

($16,845)

($5,015)

($7,886)

($7,213)

Cash flows from operating activities

Net Income (Loss)

Adjustment for non-cash items:

Changes in current assets and liabilities:

Cash flows from investing activities

Plant improvements (net)

Cash flows from financing activities

Balance Sheet Survey

Andrews

Baldwin

Chester

Digby

Cash

$32,686

$31,167

$43,241

$30,919

Accounts Receivable

$9,677

$18,268

$13,640

$15,745

Inventory

$18,033

$22,485

$14,196

$19,157

Total Current Assets

$60,397

$71,920

$71,076

$65,822

Plant and equipment

$116,460

$165,500

$275,400

$278,101

Accumulated Depreciation

($60,911)

($57,867)

($94,193)

($86,126)

Total Fixed Assets

$55,549

$107,633

$181,207

$191,975

Total Assets

$115,946

$179,553

$252,283

$257,796

Accounts Payable

$6,609

$11,616

$9,529

$10,857

Current Debt

$0

$22,040

$32,772

$30,565

Long Term Debt

$15,909

$42,229

$111,971

$109,677

Total Liabilities

$22,518

$75,886

$154,271

$151,100

Common Stock

$16,192

$11,271

$57,667

$55,407

Retained Earnings

$77,236

$92,397

$40,345

$51,290

Total Equity

$93,428

$103,668

$98,012

$106,697

Total Liabilities & Owners’ Equity

$115,946

$179,553

$252,283

$257,796

Income Statement Survey

Andrews

Baldwin

Chester

Digby

Sales

$117,742

$222,263

$165,948

$191,570

Variable Costs (Labor, Material, Carry)

$84,909

$138,172

$105,871

$123,142

Depreciation

$7,764

$11,033

$18,360

$18,540

SGA (R&D, Promo, Sales, Admin)

$14,198

$13,423

$13,530

$21,460

Other (Fees, Writeoffs, TQM, Bonuses)

$4,000

$6,900

$7,115

$8,317

EBIT

$6,871

$52,734

$21,072

$20,111

Interest (Short term, Long term)

$1,822

$7,535

$18,906

$18,107

Taxes

$1,767

$15,820

$758

$702

Profit Sharing

$66

$588

$28

$26

Net Profit

$3,216

$28,792

$1,380

$1,277

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You have your choice of two investment accounts. Investment A is a 5-year annuity that features end-of-month $2,500 payments and has an interest rate of 11.5 percent compounded monthly. Investment B is a 10.5 percent continuously compounded lump sum investment, also good for five years. How much would you need to invest in B today for it to be worth as much as investment A five years from now?

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Debt versus Equity Financing You are considering a stock investment in one of two firms (AllDebt, Inc. and AllEquity, Inc.), both of which operate in the same industry and have identical operating income of $600,000. AllDebt, Inc. finances its $1.2 million in assets with $1 million in debt (on which it pays 10 percent interest annually) and $.2 million in equity. AllEquity, Inc. finances its $1.2 million in assets with no debt and $1.2 million in equity. Both firms pay a tax rate of 30 percent on their taxable income. What are the asset funders’ (the debt holders and stockholders’) resulting return on assets for the two firms?

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City bank needs a one day reserve loan of $2.6 million from country bank. Which one of the following interest rates will be charged on this loan? money marked federal funds discount prime treasurey upwind tours just annount that t it will pay an annual dividend of $3.60 a share one year from now. two years from now, the company expects to pay a $28 a share liqudating dividend. After that, the company will cease operation.s what is the current valie per share at a dicount rate of 12.5%? 23.88 24.97 25.32 28.09 29.16 home interiors has net income of $248,000. the firm has decided to pay $160,000 of that income out to shreholders. what is the firms retention ratio .355 .412 .450 .588 .645

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Assume the following stock return (in percent) for a hypothetical company. Year Stock Return 1 10 2 8 3 12 4 12 5 10 Find the price of a 3-months call option on above stock with an exercise price of $7.50, stock price of $10.00 assuming annual risk free interest rate is 2 percent (Hint: First, you need to find the variance of stock returns using concepts of chapters 2 and 3). The answer should be $2.54 I need to know how to get the answer.

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Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $50 million last year and is not expected to grow. The firm is currently financed with all equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures: Percent Financed with Debt Wd rd 0% – 20% 8.0% 30% 8.5% 40% 10.0% 50% 12.0% If the company were to recapitalize, then debt would be issued and the funds received would be used to repurchase stock. PizzaPalace is in the 40% state-plus-federal corporate tax bracket, its beta is 1.0, the risk-free rate is 6%, and the market risk premium is 6%. a. Provide a brief overview of capital structure effects. Be sure to identify the ways in which capital structure can affect the weighted average cost of capital (10 points) and free cash flows.(10 points) b. (1) What is business risk? What factors influence a firm’s business risk? (10 points) (2) What is operating leverage, and how does it affect a firm’s business risk? (10 points) Show the operating break-even point if a company has fixed costs of $200, a sales price of $15, and variable costs of $10. (10 points) c. Now, to develop an example that can be presented to PizzaPalace’s management to illustrate the effects of financial leverage, consider two hypothetical firms: Firm U, which uses no debt financing, and Firm L, which uses $10,000 of 12% debt. Both firms have $20,000 in assets, a 40% tax rate, and an expected EBIT of $3,000. (1) Construct partial income statements, which start with EBIT, for the two firms. (20 points) (2) Now calculate ROE for both firms. (10 points) (3) What does this example illustrate about the impact of financial leverage on ROE? (10 points) d. Explain the difference between financial risk and business risk. (5 points) e. What happens to ROE for Firm U and Firm L if EBIT falls to $2,000? What does this imply about the impact of leverage on risk and return? (10 points) f. What does capital structure theory attempt to do? (5 points) h. With the preceding points in mind, now consider the optimal capital structure for PizzaPalace. use Wd = 0%, 20%, 30%, 40%, 50%) (1) For each capital structure under consideration, calculate the levered beta, the cost of equity, and the WACC.(20 points) (Use Hamada’s equation to calculate the beta, use CAPM to calculate the cost of equity) (2) Now calculate the corporate value for each capital structure. (20 points) (find WACC & calculate V (Corporate Value) i. Describe the recapitalization process and apply it to PizzaPalace. Calculate the resulting value of the debt that will be issued, the resulting market value of equity, the price per share, the number of shares repurchased, and the remaining shares. Considering only the capital structures under analysis, what is PizzaPalace’s optimal capital structure? (20 points) Total Value of the case 170 points Post your answer sheet in the drop box for week six mini case

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Assume the probability of a pessimistic, most likely and optimistic state of nature is .25, .45 and .30, and the returns associated with those states of nature are 10%, 12%, and 16% for asset X. Based on the information, the expected return and standard deviation of return are: (MUST SHOW ALL WORK FOR CREDIT) A) 12.0% and 4.0% B) 12.7% and 2.3% C)12.7% and 4.0% D) 12.0% and 2.3% E) none of the above

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Construct an example of a transaction between two parties. Identify what accounts are affected and how changes in those accounts impact the accounting equation. Explain the purpose for recording the transaction on the company’s books.

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You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $100 initially, and then $55 per year in maintenance costs. Machine B costs $150 initially, has a life of three years, and requires $25 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. What is the EAC of the better machine for the firm? The discount rate is 10% and the tax rate is zero. -$85.32 -$195.45 -$112.62 -$75.62

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Corporate Taxes Scuba, Inc. is concerned about the taxes paid by the company in 2008. In addition to $5 million of taxable income, the firm received $80,000 of interest on state-issued bonds and $500,000 of dividends on common stock it owns in Boating Adventures, Inc. What is Scuba’s tax liability, average tax rate, and marginal tax rate, respectively? $1,637,100, 31.788%, 34% $1,751,000, 34%, 34% $1,983,900, 36.07%, 34% $1,870,000, 34%, 34%

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Which is correct? This is the amount of additional taxes a firm must pay out for every additional dollar of taxable income it earns. Average tax rate Marginal tax rate Progressive tax system Earnings before tax

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Which is correct? This is defined as the excess amounts of a current asset kept on hand to meet unexpected shocks in demand. liquid current assets safety stock overnight securities float

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Which is correct? This is the ease with which an asset can be converted into cash. direct transfer liquidity primary market secondary market

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Which is correct? A bond’s current yield is defined as the bond’s annual coupon rate divided by the bond’s par value. the bond’s annual coupon rate divided by the market interest rate. the bond’s annual coupon rate divided by the bond’s current market price. the bond’s annual coupon rate divided by the bond’s original issue price.

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Which is correct? Fern has preferred stock selling for 95 percent of par that pays an 8 percent annual coupon. What would be Fern’s component cost of preferred stock? 7.60% 8.00% 8.42% 9.00%

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Which is correct? On which of the four major financial statements would you find the common stock and paid-in surplus? Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings

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Which is correct? This measures the number of days accounts receivable are held before the firm collects cash from the sale. Accounts receivable turnover Average collection period Average payment period Accounts payable turnover

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When it comes to stock investing, is market risk the only relevant risk? Explain why or why not.

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Most companies do not have the resident expertise to complete an initial public offering (IPO), so they hire an investment banker to help accomplish the sale. Describe three significant tasks that an investment banker provides.

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Your Company is considering a new project that will require $100,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $25,000 using straight-line depreciation. The cost of capital is 11%, and the firm’s tax rate is 34%. Estimate the present value of the tax benefits from depreciation. $13,607.52 $14,841.29 $15,017.54 $16,997.13

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Which of the following bonds is trading at a premium? A) 5yr bond, 2000 face value, YTM 7%, Coupon rate 7.2% APR compounded semiannually B) 10yr bond, 4000 face value, YTM 6%, Coupon rate 5.9% APR compounded semiannually C) 15yr bond, 10,000 face value, YTM 8%, Coupon rate 7.8% APR compounded semiannually D) 2yr bond, 50,000 face value, YTM 5.2%, Coupon rate 5.2% APR compounded semiannually

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A FIRM REPORTS THAT IN A CERTAIN YEAR IT HAD A NET INCOME OF 4.5 MILLION, DEPRECIATION EXPENSE OF $2.8 MILLION, CAPITAL EXPENDITURE OF 2.3 MILLION, AND NWC DECREASED BY 1.5 MILLION. WHAT IS THE FIRM’S FREE CASH FLOW FOR THAT YEAR?

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a) For the following bond, calculate its NPV given its YTM, for each scenario, i.e. filling the price for highlighted area Face Value

$1,000

Coupon Rate

5%

Maturity

5

Payment

Annual

YTM

NPV

1.000% 1.500% 2.000% 2.500% 3.000% 3.500% 4.000% 4.500% 5.000% 5.500% 6.000% 6.500% 7.000% 7.500% 8.000% 8.500% 9.000% 9.500%

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A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows:

Year

Cash Flow

0

“?o$

29,000

1

13,000

2

16,000

3

12,000

If the required return is 15 percent, what is the IRR for this project?

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Your Company is considering a new project that will require $100,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $5,000 using straight-line depreciation. The cost of capital is 14%, and the firm’s tax rate is 30%. Estimate the present value of the tax benefits from depreciation.

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Your firm needs a computerized machine tool lathe which costs $50,000, requires $10,000 in installation, $5,000 in freight charges and another $12,000 in maintenance for each year of its 3 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 30% and a discount rate of 12%. If the lathe can be sold for $7,000 at the end of year 3, what is the after-tax salvage value? $6,499.35 $6,344.95 $5,999.45 $6,554.95

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A firm is planning on paying its first dividend of $2 three years from today. After that, dividends are expected to grow at 6% per year indefinitely. The stock’s required return is 14%. What is the intrinsic value of a share today?

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For which of the following would one expect the book value of the asset to differ widely from its market value? Cash Accounts receivable Inventory Fixed assets

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Which of the following is incorrect? 1. It is possible to combine assets that all move in the exact same fashion over time and gain the benefits of diversification. 2.Adding long-term Treasury bonds to a stock portfolio will reduce the risk of the portfolio. 3.The optimal portfolio is the one with the lowest amount of risk.

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Once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in which of these? initial public offerings direct transfers secondary markets over-the-counter stocks

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A firm uses only debt and equity in its capital structure. The firm’s weight of equity is 75%. The firm’s cost of equity is 16% and it has a tax rate of 30%. If the firm’s WACC is 13%, what is the firm’s before-tax cost of debt?

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FlavR Co stock has a beta of 2.0, the current risk-free rate is 2, and the expected return on the market is 9 percent. What is FlavR Co’s cost of equity?

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Your firm, which specializes in complex electronic products, has grown rapidly and you are now incorporating. Even after incorporation, a large percentage of the stock will be held by the founders, including you. Your colleague recommends a large corporate board made up exclusively of outsiders. She is very concerned about the sensationalized corporate scandals in recent years. Do you agree with her recommendation

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As much as any other field of study, the field of finance is based on the assumption that people will behave rationally, either in their own self- interest or for the benefit of society. Can you reconcile that assumption with the circumstances or the recent financial crisis? If you can’t, summarize some of the forces that were not based on reasoned thinking

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For each finance website find the following information about the Campbells Soup Stock (CPB) Yahoo.finance.com Reuters.com/finance Google.com/finance Please answer the folling questions 1. How long of a window do they use for the Campbells Soup Stock? Ex. 5 yr 2. How frequently is the stock returns data collected? 3. And what do they use as the market stock? Ex. S&P 500

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Your firm is contemplating the purchase of a new $545,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $53,000 at the end of that time. You will be able to reduce working capital by $68,000 (this is a one-time reduction). The tax rate is 34 percent and the required return on the project is 14 percent. If the pretax cost savings are $217,000 per year, what is the NPV of this project? If the pretax cost savings are $167,000 per year, what is the NPV of this project? At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

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A company is trying to decide whether to revise its target capital structure. Currently, it targets 50% debt and 50% equity. However, it is considering changing the mix to 70% debt and 30% equity. Their debt currently has an after-tax cost of 6% and the equity costs them 12%. They do not have any preferred stock. A. What is their current WACC? B. Assuming that the cost of debt and equity remain unchanged, what will be their WACC if they incerase debt to 70% as proposed?

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Compute the coupon rate for a 3-year annual coupon bond assuming the price is 98 and the yield is 6.1%.

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A company has been considering purchasing a new lathe to replace an old fully depreciated lathe that will last 5 more years. The new lathe is expected to have a 5-year life and depreciation charges of $2,000 in year 1 $3,200 in year 2 $1,900 in year 3 $1,200 in year 4 $1,200 in year 5 $500 in year 6 The firm estimates the revenues and expenses for the new and old lathes shown below and the firm is in the 40% tax bracket. Calculate the Operating Cash Flows associated with each lathe. OLD LATHE Year Revenue Expenses Excluding Depreciation and Interest 1 $40,000 $30,000

2 $41,000 $30,000 3 $42,000 $30,000

4 $43,000 $30,000 5 $44,000 $30,000 OLD LATHE Year Revenue Expenses Excluding Depreciation and Interest 1 $35,000 $25,000

2 $35,000 $25,000 3 $35,000 $25,000

4 $35,000 $25,000 5 $35,000 $25,000

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When computing the future value of an annuity, the higher the compound frequency, the lower the future value will be. the higher the future value will be. the less likely the future value can be calculated. the more likely the future value can be calculated. Which is correct?

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Consider the characteristics of the following three stocks: Expected Return Standard Deviation Thumb Services 13% 23% Air Comfort 10% 19% Sport Garb 10% 17%

The correlation between Thumb Devices and Air Comfort is- 0.12. The correlation between Thumb Devices and Sport Garb is 0.0. The correlation between Air Comfort and Sport Garb is 0.85. If you can pick only two stocks for your portfolio, which would you pick? Why? Combine Thumb Devices and Sport Garb because there is zero correlation.

Combine Thumb Devices and Air Comfort because they are negatively correlated.

Combine Air Comfort and Sport Garb due to negative correlation.

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Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semi-annual and par value is $1,000.) Is this a discount or premium bond?

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Consider the following annual returns of Estee Lauder and Lowe’s Companies: Estee Lauder Lowes’s Companies 2006 3% -6% 2005 -26% 15% 2004 13% 14% 2003 47% 48% 2002 -13% -21% A. Estee Lauder: 4.8%; 27.91%; 5.81 Lowe’s Companies:10%; 25.99%; 2.60 B. Estee Lauder: 4.8%; 19.79%; 4.12 Lowe’s Companies: 10%; 25.99%; 2.6 C. Estee Lauder: 4.8%; 27.91%; 5.81 Lowe’s Companies: 10%; 28.99%; 2.9 D. Estee Lauder: 4.8%; 19.79%; 4.12 Lowe’s Companies: 39.10%; 28.99%; 2.9

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An investment project provides cash inflows of $645 per year for eight years. What is the project payback period if the initial cost is $1,800? What if the initial cost is $3,500? What if it is $5,300?

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An all-equity business has 100 million shares outstanding selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a dividend recapitalization (a recap). It will raise $1 billion in debt and repurchase 50 million shares. a. What is the market value of the firm prior to the recap? What is the market value of equity? b. Assuming the Irrelevance Proposition holds, what is the market value of the firm after the recap? What is the market value of equity? c. Do equity shareholders appear to have gained or lost as a result of the recap? Please explain. d. Assume now that the recap increases total firm cash flows, which adds $100 million to the value of the firm. Now what is the market value of the firm? What is the market value of the equity? e. Do equity shareholders appear to have gained or lost as a result of the recap in this revised scenario?

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Equipment is frequently replaced to ____. reduce costs

increase costs

reduce the tax rate

increase the tax rate

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You are evaluating the balance sheet for Campus Corporation. From the balance sheet you find the following balances: Cash and marketable securities = $400,000, Accounts receivable = $200,000, Inventory = $100,000, Accrued wages and taxes = $10,000, Accounts payable = $300,000, and Notes payable = $600,000. What is Campus’s net working capital?

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JoJo’s portfolio’s return is 12%. She is invested in Cisco and IBM which had returns of 15% and 9% respectively. What percentage of JoJo’s assets are invested in each firm? 40% in Cisco and 60% in IBM 50% in Cisco and 50% in IBM 30% in Cisco and 70% in IBM Unable to determine with the data provided

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Jones, Inc. has a current ratio equal to 1.40. Which of the following transactions will increase the company’s current ratio: The company collects $500,000 of its A/R, The company sells $1Million of its inventory, Comapnywrites a check for $40,000 to pay A/P, Company pays back 60,000 of its long term debt

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The Evanec Company’s next expected dividend, D1, is $3.49; its growth rate is 7%; and its common stock now sells for $38. New stock (external equity) can be sold to net $36.10 per share. 1. What is Evanec’s cost of retained earnings, rs? Round your answer to two decimal places. rs = % 2. What is Evanec’s percentage flotation cost, F? Round your answer to two decimal places. F = % 3. What is Evanec’s cost of new common stock, re? Round your answer to two decimal places. re = %

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JRN Enterprises just announced that it plans to cut its dividend from $2.50 to $1.50 per share and use the extra funds to expand its operations. Prior to this announcement, JRN’s dividends were expected to grow at 4% per year and JRN’s stock was trading at $25.00 per share. With the new expansion, JRN’s dividends are expected to grow at 8% per year indefinitely. Assuming that JRN’s risk is unchanged by the expansion, the value of a share of JRN after the announcement is closest to: A) $25 B) $15 C) $31.25 D) $27.50

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Compute the NPV for Project M if the appropriate cost of capital is 8 percent

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you have just won the lottery! you can either receive a $5,000 a year for 15 yeears or $50,000 as a lump sum payment today. What is the interest rate on the annuity option?

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Kelly decided to accept the risk and purchased a high growth stock. Her returns for the past five years are 48 percent, 39 percent, -56 percent, 61 percent, and -24 percent. What is the standard deviation of these returns? 43.20 percent 45.46 percent 47.88 percent 50.83 percent 58.39 percent

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Imagine and then describe two projects that are represented by the estimated cash flows in Question #15 Calculate the Net Present Value. Calculate the Profitability Index, the Payback Period and the Internal Rate of Return. The required rate of return is 13%. What would your recommendation be? Next, perform a scenario analysis in which the estimated cash inflows fall short by 10% and then in which they exceed expectations by 10%. Based on these new findings, will you change your recommendation?

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Imagine that today you want to sell a $1,000 face value zero coupon bond you currently own. The bond matures in 4.5 years. How much will you receive for your bond if the market yield to maturity is currently 5.33 percent? Ignore any accrued interest. Show your work. Do not provide financial calculator information, need the written formula and how to solve.

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Incurred expense: $6,500. “cannual deductible: $300 “cco-insurance split 80/20 (insurance 80%, Regina 20%) “cco-insurance cap $1,000 “cepisode limit $25,000 When Regina receives her statement regarding her total portion of the accrued expense for which she is responsible, what will it say she owes?

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Javits & Sons’ common stock currently trades at $37.00 a share. It is expected to pay an annual dividend of $2.75 a share at the end of the year (D1 = $2.75), and the constant growth rate is 6% a year. 1. What is the company’s cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. % 2. If the company were to issue new stock, it would incur a 14% flotation cost. What would the cost of equity from new stock be? Round your answer to two decimal places. %

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If the initial offer price for new securities is too high, the underwriters may 1.

purchase the securities with their own funds

2.

sell the securities at the offer price

3.

let the price fall

Answer a.

1 and 2

b.

2 and 3

c.

1 and 3

d.

1, 2, and 3

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The inflation rate is 3% per year. How much is a car that will cost $73,000 in 25 years worth now?

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If an investor sells short, the individual 1.

sells borrowed securities

2.

sells securities from his or her portfolio

3.

anticipates a price increase

4.

anticipates a price decrease

Answer a.

2 and 3

b.

1 and 4

c.

2 and 4

d.

1 and 3

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Many IRA funds argue that investors should invest at the beginning of the year rather than at the end of the year. What is the difference to an investor who invests $2,000 per year at 11 percent over a 30 year period? Why? Show your work.

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The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.34 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely.

Required: (a)

If investors require a 10 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price?

(Click to select) $22.33 $22.76 $23.23 $23.69 $9.57

(b)

What will the price be in 10 years? (Click to select) $34.38 $14.17 $33.06 $33.69 $35.07

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Henry’s doctor has called and informed him that she is concerned about some of the blood test results she received from the laboratory. She would like Henry to undergo some further diagnostic testing, specifically, she would like him to do a CT Scan. Henry is worried about the cost of such a procedure. Knowing that this procedure is covered under Henry’s insurance policy, what is the most that he will have to pay for the scan. Use the following information to calculate the most Henry would have to pay for the scan.

“c annual deductible $200 (previously met) “c co-insurance split 80/20 (insurance 80%/Henry 20%) “c co-insurance cap $1,000 (Henry has paid $700 + his new co-insurance portion from recent visit) help.

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Henry visited the doctor’s office last week because of a persistent cough and difficulty breathing. The bill has arrived and Henry can see that he was charged by his physician for the visit as well as radiology for an x-ray of his lungs and the laboratory for tests on his blood sample. The combined fees billed for the visit, the x-ray, and the lab tests is $475. With previous health care visits this year, Henry has already met his annual deductible of $200 and has accumulated $700 toward his co-insurance cap in previous bills he has paid. Use the following information to calculate the portion of the bill to be covered by Henry’s insurance provider.

“c annual deductible $200 (previously met) “c co-insurance split 80/20 (insurance 80%/Henry 20%) “c co-insurance cap $1,000 (before this visit, Henry had paid $700 in co-insurance so far this year)

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Henry called to inquire about the cost of the scan and was informed that the charge is $500. What will Henry’s portion be? Use the following information to calculate the most Henry would have to pay for the scan.

“c annual deductible $200 (previously met) “c co-insurance split 80/20 (insurance 80%/Henry 20%) “c co-insurance cap $1,000 (Henry has paid $700 + his new co-insurance portion from recent visit) help

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Historically high return stocks have exhibited lower risk than low return stocks”?.just the opposite what the SML (Security Market Line) predicts. Wall Street ( and unsuspecting financial planners) has been very successful in selling main street the story that higher risk = higher reward, while the smart money knows this and is able to effectively arbitrage excess returns from low risk stocks? To what extent does this make sense? Discuss and elaborate your response.

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You were hired as a consultant to ABC Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The before-tax cost of debt is 8.00%, the cost of preferred is 7.50%, and the cost of common is 12.75%. What is its WACC if the tax rate is 25%? If the market value of debt is $148,729, market value of preferred stock is $93,604, and market value of common equity is 244,809, what is the weight of common equity? The risk-free rate is 3%, the market risk premium is 6.7%, and the stock’s beta is 1.3. What is the cost of common stock (Ke)? Please explain and give an answer.

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I need help calculating the times interest earned ratio, Price/Earnings Ratio, Earnings per common Share, and Dividend Payout Ratio for Panera Bread Company for the year 2012. Please provide forumla and computation. Below is the site with the information to compute the ratios. http://www.google.com/url?sa=f&rct=j&url=http://www.panerabread.com/content/dam/panerabread/documents/financial/2012/ar2012.pdf&q=&esrc=s&ei=oXRMUs2iJIe88wSfpoDICg&usg=AFQjCNHMpA0XyD5fgM0y6AnR_WH-ZM2L8Q

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I need help

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you just took a 12000.00 loan and has 4 year term and repayments of 4equal year end payments the interest rate of the loan is 11.5% consider the final loan how much interest do you pay in the final payment

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IBM’s stock price is $22, it is expected to pay a $2 dividend and analysts expect the firm to grow at 10% per year for the next 5 years. TDI’s stock price is $10, it is expected to pay a $1 dividend and analysts expect the firm to grow at 12% per year for the next 5 years. What is the difference in the two firm’s required rate of returns?

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Harold Rawlings has computed the returns he earned last year from each of the stock he holds in his portfolio. The individual returns and the amount he had invested in each stock at the beginning of the year are shown in the following table: Stock Return Amount Invested AT&T 22.5% $5,200 GM 12.3% $5,520 Danka -44.7% $1,200 Suiza Foods 100.0% $ 3.080 A. Compute the return that Harold earned on his portfolio during the year? B. Harold has decided to keep Danka in his portfolio, even though it has experienced financial difficulties and performed very poorly last year, because he expects a significant turnaround that will generate a 25 percent return next year. Suppose that Harold is correct. Assuming that the returns from the other stocks remain the same as last year, compute the return on the portfolio for next year. (Hint: The portfolio weights for the stocks change based on the returns earned last year, so the values of the stocks at the end of the year should be used to compute the new weights.)

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Harder Points One has just paid a dividend of $1.50, has a required return of 17% and a current stock price of $50.65. What is the expected growth rate? a. 13.63% b. 14.04% c. 14.44% d. cannot be determined Adams Enterprises’ noncallable bonds currently sell for $1,120. They have a 15-year maturity, an annual coupon of $85, and a par value of $1,000. What is their yield to maturity? a. 5.84% b. 6.15% c. 6.47% d. 6.81% e. 7.17% Sadik Inc.’s bonds currently sell for $1,180 and have a par value of $1,000. They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,000. What is their yield to call (YTC)? a. 6.63% b. 6.98% c. 7.35% d. 7.74% e. 8.12%

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Harrison Clothiers’ stock currently sells for $35 a share. It just paid a dividend of $3 a share (that is, D0 = 3). The dividend is expected to grow at a constant rate of 10% a year. a. What stock price is expected 1 year from now? Round your answer to two decimal places. b. What is the required rate of return? Round your answers to two decimal places.

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The Hartnett Corporation manufactures baseball bats with Pudge Rodriguez’s autograph stamped on them. Each bat sells for $49 and has a variable cost of $26. There are $37,950 in fixed costs involved in the production process. Need help with answer B.

(a)

Compute the break-even point in units. (Round your answer to the nearest whole number.)

Break-even point

(b)

units

Find the sales (in units) needed to earn a profit of $19,320.

Sales

units

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What is the monthly payment on a 25 year mortgage loan for $100,000 with a 5.5% interest rate?

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Mr. Gold is in the widget business. He currently sells 1.1 million widgets a year at $8 each. His variable cost to produce the widgets is $6 per unit, and he has $1,730,000 in fixed costs. His sales-to-assets ratio is eight times, and 40 percent of his assets are financed with 8 percent debt, with the balance financed by common stock at $10 par value per share. The tax rate is 35 percent. His brother-in-law, Mr. Silverman, says he is doing it all wrong. By reducing his price to $7.50 a widget, he could increase his volume of units sold by 60 percent. Fixed costs would remain constant, and variable costs would remain $6 per unit. His sales-to-assets ratio would be 11.0 times. Furthermore, he could increase his debt-to-assets ratio to 50 percent, with the balance in common stock. It is assumed that the interest rate would go up by 1 percent and the price of stock would remain constant.

(a)

Compute earnings per share under the Gold plan.(Enter your answer in dollars not in millions. Round your answer to 2 decimal places. Omit the “$” sign in your response.)

Earnings per share

(b)

$

Compute earnings per share under the Silverman plan.(Enter your answer in dollars not in millions.Round your answer to 2 decimal places. Omit the “$” sign in your response.)

Earnings per share

$

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Musgrave Corporation has fixed operating cost of $46,000 and variable costs that are 30% of the current sales price of $2.15. At a price of $2.15, Musgrave sells 40,000 units. Musgrave can increase sales by 10,000 units by cutting its unit price from $2.15 to $1.95, but variable cost per unit will not change. Should it cut its price?

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In the month of March the Chester Corporation received and delivered orders of 170,000 units at a price of $15.00 for revenue of $2.550mil for their product Cedar. Chester uses the accrual method of accounting and offers 30 day credit terms. By the end of May Chester had collected payments of $2.550mil for the March deliveries. How much of the collected $2.550mil should Chester show on the March 31st income statement and how much on the May 31st income statement? Select: 1 $0.842mil in March; $1.708mil in May $1.275mil in March; $1.275mil in May $0 in March; $2.550mil in May $2.550mil in March; $0 in May

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A new project would require and immediate increase in raw materials in the amount $12,000. The firm expects that accounts payable will automatically increase $8,500. How much must the firm expect its investment in net working capital to increase if they accept this project?

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New York Deli’s has 7 percent preferred stock outstanding that sells for $36 a share. This stock was originally issued at $50 per share. What is the cost of preferred stock?

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Negus Enerprises has aan inventory conversion period of 50 days, an average collection period of 35 days and a payable deferral period of 25 days. assume hat cost of goods sold is 80% of sales. A. what is the length of the firm’s cash conversion cycle B. If Negus’s annual sales are $4,380,000 and all sales are on credi, what is the firm’s invesment in accounts payable c. How many times per year does Negus Ent. turn over its inventory Show work

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Fill in the missing numbers for the following income statement. (Input all amounts as positive values.)

Sales

$

688,900

Costs

443,800

Depreciation

116,400

EBIT

$

Taxes (34%)

Net income

$

Calculate the OCF.

OCF

$

What is the depreciation tax shield?

Depreciation tax shield

$

check my workebook & resources

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Nico makes annual end-of-year payments of $5,043.71 on a four-year loan with an interest rate of 13 percent. The original principal amount was $24,462. $15,000. $ 3,092. $20,175. If a United States Savings bond can be purchased for $29.50 and has a maturity value at the end of 25 years of $100, what is the annual rate of return on the bond? Answer 5 percent 6 percent 7 percent 8 percent Which of the following is NOT an example of annuity cash flows? Answer Regular equal monthly rent payments. Equal annual deposits into a retirement account. The $50 of gasoline you put into your car every two weeks on payday. All of the examples above are annuity cash flows.

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You are leasing a car worth $32,000 for 36 months. You put down $1200 now and agree to monthly payments. The residual value is $17,000. The financing rate is 6% (monthly compounded). How much are your monthly payments going to be?

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A medium size firm is considering the issuance of additional long-term debt to finance expansion. At the present time the company has $160 million of 10% bonds outstanding. Its after-tax net income is $48 million, and the company’s (marginal) income tax rate is 40%. The company is required by the bond holders to maintain its times interest earned ratio at 4.0 or greater. Determine the firm’s current times interest earned ratio.

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Menteks Co’s Accounts receivable turnover is 5.4 and inventory turnover is 4.8. These ratios are respectively 8 and 6 for the industry. The company’s annual sales are $960,000 and they are all on credit. The company has a gross profit margin of 20% and it borrows at an interest rate of 10%. a)how much funds has been unnecessarily tied up in the current assets of the company? b)because of the unnecessary funds tied up in current assets, how much less is expected to be the profit figure of the firm?

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The mean amount of money that a family of four will spend on a baseball game, including the food and souvenirs, is $195 with a standard deviation of $50. Assume that this distribution is normal. 1. Find the probability that a particular family of four selected at random spends between $250 and $300? 2. What is the probability that the family spends less than $250? 3. What is the probability that the family spends more than $325? 4. What is the probability that the family spends between $100 and $160? (Be able to draw a graph to illustrate your results) 5. Find the cost that represents the 50th percentile. 6. Find the cost that represents the 90th percentile. 7. 5% of the families spend below what value? 8. The top 5% of the families spend above what value? 9. Between what two values will the middle 50% of the families spend? 10. What percent of the families spend at least $120 on the game? 11. Use the empirical rule to determine the following: A About 68% of the observations lie between what two values? B About 95% of the observations lie between what two values? C About 99% of the observations lie between what two values? 12. Use the standard normal distribution to determine the following A 68% of the observations lie between what two values? B 95% of the observations lie between what two values? C 99% of the observations lie between what two values? 13. Discuss the differences in the results for question 12 and question 11

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Leatherman Corporation’s bonds have 15 years till maturity, a 6% coupon rate, and semiannual payments. What should their price be if the YTM is 7%?

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The MerryWeather Firm wants to raise $28 million to expand its business. To accomplish this, the firm plans to sell 20-year, $1,000 face value zero-coupon bonds. The bonds will be priced to yield 6 percent. What is the minimum number of bonds the firm must sell to raise the $28 million it needs? Use annual compounding.

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Market Value Ratios Lab R Doors’ year-end price on its common stock is $40. The firm has a profit margin of 10%, total assets of $30 million, a total asset turnover ratio of 2, no preferred stock, and there are 4 million shares of common stock outstanding. What is the PE ratio for Lab R Doors? Compute the present value of $4,000 paid in five years using the following discount rates: 10% in year 1, 2% in year 2, 12% in year 3, and 9% in years 4 and 5.

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Market Value Ratios Tina’s Track Supply’s market-to-book ratio is currently 4.5 times and PE ratio is 10.5 times. If Tina’s Track Supply’s common stock is currently selling at $100 per share, what is the book value per share and earnings per share? $9.5238, $22.2222, respectively $1050, $450, respectively $450, $1050, respectively $22.2222, $9.5238, respectively

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Markups in retailing are typically computed on the basis of ________.

A.merchandise cost B.merchandise cost plus freight C.retail selling price D.retail selling price plus freight

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Marquez Company issues a $100000, 12%, 10 year bond. THe company’s tax rate is 30%. THe after-tax semiannual interest dollar amount cost is. Please show work. 1. $4200 2. $6000 3. $8400 4. $12000

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MC Qu. 24 TAFKAP Industries has 8 million shares of st… TAFKAP Industries has 8 million shares of stock outstanding selling at $17 per share and an issue of $20 million in 7.5%, annual coupon bonds with a maturity of 15 years, selling at 109% of par. If TAFKAP’s weighted average tax rate is 34% and its cost of equity is 12.5%, what is TAFKAP’s WACC?

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Liquidity Ratios You are evaluating the balance sheet for Shockers Corporation. From the balance sheet you find the following balances: Cash and marketable securities = $800,000, Accounts receivable = $2,000,000, Inventory =3,500,000, Accrued wages and taxes = $750,000, Accounts payable = $1,200,000, and Notes payable = $1,000,000. What are Shockers’s current ratio, quick ratio, and cash ratio, respectively? 0.94915, 0.94915, 0.27119 2.13559, 0.94915, 0.27119 3.23077, 0.94915, 0.27119 3.23077, 1.43589, 0.41026

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Find or make a graph of interest rates over the last 30-40 years. What do you see? Do you think interest rate risk or reinvestment risk is a bigger problem for today’s bond investors?

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One of the primary differences between U.S. GAAP and international accounting standards is that the use of LIFO is permitted for U.S. companies. How does LIFO affect a company’s financial results? In your opinion, should LIFO be a permitted inventory costing method? Why might companies that currently use LIFO oppose its elimination? Support your conclusions with research.

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What is the primary tool for short-term financial forecasting? Pro forma income statement Pro forma balance sheet Pro forma cash budget Capital Budgeting

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Mahjong, Inc., has identified the following two mutually exclusive projects:

Year

Cash Flow (A)

Cash Flow (B)

0

“?o$37,000

“?o$37,000

1

19,000

6,000

2

14,500

12,500

3

12,000

19,000

4

9,000

23,000

Required:

(a)

What is the IRR for Project A?

(Click to select) 21.32% 19.28% 20.91% 19.69% 20.3%

(b)

What is the IRR for Project B?

(Click to select) 17.62% 19.48% 19.11% 17.99% 18.55%

(c)

If the required return is 11 percent, what is the NPV for Project A?

(Click to select) $6,259.09 $6,588.52 $6,390.86 $6,786.18 $6,917.95

(d)

If the required return is 11 percent, what is the NPV for Project B?

(Click to select) $7,214.42 $7,366.31 $7,821.95 $7,973.84 $7,594.13

(e)

At what discount rate would the company be indifferent between these two projects?

(Click to select) 13.82% 14.96% 14.25% 14.68% 13.54%

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1.You are considering buying four stocks. You want to buy the one that trades most below its fair P0/B0. Given the data below, if you can just buy one stock, which one should you buy?

Stock

Payout Ratio

Long-term Growth Rate

Cost of Equity Capital

ROE0

Current P0/B0

A

50%

10.0%

13%

10%

2.0

B

60%

5.5%

8%

12%

2.2

C

40%

3.5%

7%

8%

0.8

D

100%

0%

6%

7%

2.0

Hint: You should buy the one where the P0/B0 is furthest below what the P/B should be (the fair P/B). For instance, if the fair P/B is 10% higher than P0/B0, then the stock should rise 10% as it moves to fair value (P rises while B is unchanged, so the P/B ratio rises). Stock investors frequently analyze the P/B ratio to determine whether or not to buy a security. a)A b)B c)C d)D

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1.) You are currently earning 12% compounded semiannually. Your investment company is switching all accounts to daily compounding. What rate will give you the same effective annual rate of return as you are receiving now? a. 10.83% b. 10.97% c. 11.66% d. 11.89% 2.) A corporation has annual sales of $18 million, total assets of $4 million, a debt ratio of 40%, depreciation expense of $200,000, and a tax rate of 40%. The corporation’s total stockholders’ equity is equal to a. $5,600,000. b. $2,800,000. c. $2,400,000. d. $1,800,000. 3.) You charged $1,000 on your credit card for Christmas presents. Your credit card company charges you 26% annual interest, compounded monthly. If you make the minimum payments of $25 per month, how long will it take (to the nearest month) to pay off your balance? a. 94 months b. 79 months c. 54 months d. 40 months 4.) A corporate manager decides to build a new store on a corporate-owned lot that could be sold to a local developer for $250,000. The corporation purchased the lot for $50,000 twenty years ago. When determining the value of the new store project, a. the cost of the lot is zero since the corporation already owns it. b. the opportunity cost of the lot is $250,000 and should be included in calculating the value of the project. c. the cost of the lot for valuation purposes is $50,000 because land does not depreciate. d. the incremental cash flow should be the $50,000 original cost, less accumulated amortization. 5.) Baron, Inc. has total current assets of $1,200,000; total current liabilities of $500,000; and long-term assets of $800,000. How much is the firm’s Total Liabilities & Equity? a. $2,500,000 b. $1,300,000 c. $2,000,000 d. $1,800,000 6.) The primary goal of a publicly owned corporation is to ________. a. maximize dividends per share b. maximize shareholder wealth c. maximize earnings per share after taxes d. minimize shareholder risk 7.) Li Retailing reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000. Li’s net profit margin is equal to a. 25.67%. b. 35.67%. c. 36.67%. d. 50.00%.

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1. elgin battery manufacturers had sales of $900,000 in 2012 and their cost of goods sold represented 65% of sales. selling and administrative expnese were 9% of sales. depreciation expenses was $10,000 and interest expense for the year was $8,000. the firm’s tax rate is 34%. what is the dollar amount of taxes paid? A 151,200 B. 64,800 C. 73440 2. ABC Co. has an average collection period of 50 days. total credit sales for the year were $3,500,000. what is the balance in accounts receivable at year-end? a. 700,000 b. 100,000 c.600,000

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As market interest rates ______, the value of a bond will _____. Answer A. fall; fall

B. fall; rise

C. rise; rise

D. rise; fall

both B. and D.

A bond indenture provision that requires the orderly retirement of the bond issue is a(n) _____. Answer takeout provision

original issue discount

sinking fund provision

A bond’s value is equal to its _____. Answer discounted future interest cash flows and future par payment

discounted past interest cash flows and future par payment

discounted today’s interest payment and future par payment

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What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?

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Suppose you observe that 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for the bonds is LP = 0.75% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t “?o 1) A?´ 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on the bond in question? Show your work in detail, including formulas.

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Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following 3 years (i.e., years 2,3 and 4 respectively) are as follows: 1 R 1 = 5%, E(2 r1 )= 6%, E(3 r1 ) = 7.5% E(4r1) = 7.85% Using the unbiased expectations theory, calculate the current (long-term) rates for three-year and four-year -maturity Treasury securities. Possible Answers: One year: 6.16 %; two-year 6.58% One year: 6.16 %; two-year 6.78% One year: 6.25 %; two-year 6.45% One year: 5.95 %; two-year 6.45%

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Suppose the data in exhibit 11.9 are for a given year. Calculate GDP using the expenditure approach.

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Suppose that JB Cos. has a capital structure of 66% equity, 34% debt, and that its before-tax cost of debt is 13% while its cost of equity is 19%. If the appropriate weighted average tax rate is 35%, what will be JB’s WACC?

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Present Value of an Annuity Due If the present value of an ordinary, 10-year annuity is $5,000 and interest rates are 7 percent, what’s the present value of the same annuity due? $5,500.00 $5,350.00 $4,672.90 $5,000.00

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Which is true? Ratio analysis: can provide useful information on a firm’s current position but should never be used to forecast future performance. can provide useful information on a firm’s current position and hint at future performance. can provide useful information on a firm’s past but not current position. can provide useful information on a firm’s past and current position, but should never be used to forecast future performance.

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You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $13,000 to purchase and which will have OCF of -$1,200 annually throughout the vehicle’s expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $23,000 to purchase and which will have OCF of -$550 annually throughout that vehicles expected five-year life. Both cars will be worthless at the end of their life. If you intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 12 percent, what is the EAC of each car? Scion xA: -$6,612.54; Toyota Prius: -$6,698.12 Scion xA: -$6,301.97; Toyota Prius: -$6,903.42 Scion xA: -$6,612.54; Toyota Prius: -$6,903.42 Scion xA: -$6,301.97; Toyota Prius: -$6,698.12

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Tulley Appliances, Inc. projects next year’s sales to be $20 million. Current sales are at $15 million, based on current assets of $5 million and fixed assets of $5 million. The firm’s net profit margin is 5 percent after taxes. Tulley forecasts that current assets will rise in direct proportion to the increase in sales, but fixed assets will increase by only $100,000. Currently, Tulley has $1.5 million in accounts payable (which vary directly with sales), $2 million in long-term debt (due in 10 years), and common equity (including $4 million in retained earnings) totaling $6.5 million. Tulley plans to pay $500,000 in common stock dividends next year. a. What are Tulley’s total financing needs (that is, total assets) for the coming year? I need complete details to this answer please.

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You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $13,000 to purchase and which will have OCF of -$1,200 annually throughout the vehicle’s expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $23,000 to purchase and which will have OCF of -$550 annually throughout that vehicles expected five-year life. Both cars will be worthless at the end of their life. If you intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 16 percent, what is the difference in the EAC of the two cars? $381.36 $428.04 $586.07 $601.51

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Suppose we observe the following rates: 1R 1 = 6%, 1R 2 = 15%. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year interest rate expected one year from now, E(2r1)? 18.5% 17.2% 25.0% 28.0%

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Suppose the real risk free rate is 3.50%, the average future inflation rate is 2.50%, a maturity premium of 0.02% per year to maturity applies, i.e., MRP = 0.20%(t), where t is the years to maturity. Suppo se also that a liquidity premium of 0.50% and a default risk premium of 1.35% applies to A rated corporate bonds. What is the difference in the yields on a 5 year A rated corporate bond and on a 10 year Treasury bond? Here we assume that the pure expectations theory is NOT valid, and disregard any cross product terms, i.e., if averaging is required, use the arithmetic. Please help

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Suppose in the base year, a typical market basket purchased by an urban family cost $250. In year 1, the same market basket cost $950. What is the consumer price index (CPI) for year 1? If the same market basket cost $1,000 in year 2, what is the CPI for year 2? What was the annual rate of inflation for year 2?

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“As President Barack Obama prepares to depart Thursday for his first Asia trip, Chinese premier Wen Jiabao is urging the U.S. to keep its deficit to an “appropriate size,” a clear message to the leader of the world’s largest debtor nation from its largest creditor. China is the largest holder of U.S. government debt and has invested an estimated 70% of its more than $2 trillion stockpile of foreign-exchange reserves (the world’s largest) in dollar assets, Reuters reports. Further dollar weakness, brought on by enormous U.S. deficit spending and near-zero interest rates, would erode the value of China’s huge U.S. holdings. “Most importantly, we hope the United States will keep an appropriate size to its deficit so that there will be basic stability in the exchange rate, and that is conducive to stability and the recovery of the global economy,” Wen Jiabao said over the weekend at a news conference in Egypt. In contrast, the best strategy for the U.S. may be an inflationary stance. We need stimulus spending to jump start our economy and reduce the real value of our record budget deficit of $1.42 trillion in the fiscal year that ended Sept. 30. An improved U.S. economy also would mean more Americans buying up Chinese-made goods” Please comment on the following questions: Why is China concerned about the value of US dollar? What can they do to decrease their exposure to fluctuations in the value of US dollar? Is decreasing exposure to US dollar an easy task for China? Why?

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The president of Worldwide Gadgets would like to offer special, deeply discounted sale prices to Worldwide’s most loyal and best customers under the following terms: 1. The prices will apply only to units purchased in excess of the quantity normally purchased by any given a customer. 2. The units purchased must be paid for in cash at the time of sale “?o no credit terms to be offered. 3. The total quantity sold under these terms to all customers cannot exceed the excess capacity of the firm. 4. The net profit of the firm should not be negatively affected. 5. The prices will be in effect for ten days only. Given these conditions, the special sale price should be set equal to the A. marginal cost of materials only. B. average variable cost of materials only. C. marginal cost of all variable inputs. D. average cost of all variable inputs. E. sensitivity value of the variable costs.

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If Stock A had a price of $120 at the beginning of the year, $150 at the end of the year and paid a $6 dividend during the year, what would be the annualized holding period return? (NEED TO SHOW ALL WORK FOR CREDIT) A) 36% B) 30% C) 24% D) none of the above

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Stock A has the following returns for various states of the economy: State of the Economy

Probability

Stock A’s Return

Recession

9%

-72%

Below Average

16%

-15%

Average

51%

16%

Above Average

14%

35%

Boom

10%

85%

Stock A’s expected return is Answer 9.9 % 12.7 % 13.8% 16.5% An investor currently holds the following portfolio: Amount Invested

8,000 shares of Stock A

$16,000

Beta = 1.3

15,000 shares of Stock B

$48,000

Beta = 1.8

25,000 shares of Stock C

$96,000

Beta = 2.2

If the risk-free rate of return is 4% and the market risk premium is 9%, then the required return on the portfolio is Answer 14.00%.

17.91%.

21.91%.

23.85%.

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A stock has a required return of 15%; the risk-free rate is 6%; and the market risk premium is 4%. a. What is the stock’s beta? Round your answer to two decimal places b. If the market risk premium increased to 10%, what would happen to the stock’s required rate of return? Assume the risk-free rate and the beta remain unchanged. 1. If the stock’s beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium. 2. If the stock’s beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium. 3. If the stock’s beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium. 4. If the stock’s beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. 5. If the stock’s beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.

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Stone Sour Corp. issued 10-year bonds 2 years ago at a coupon rate of 7.80 percent. The bonds make semiannual payments. If these bonds currently sell for 108 percent of par value, what is the YTM?

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Solving for Rates What annual rate of return is earned on a $200 investment when it grows to $850 in ten years? 4.25% 3.25% 15.57% 13.47%

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Solving for Time How many years will it take $100 to grow to $1,000 with an annual interest rate of 8 percent? 9.00 years 29.92 years 10.00 years 33.35 years

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1. When should an investor calculate both yield to maturity and yield to call? A. Whenever there is a call provision B. When the sum of the present values of the interest payments exceeds the call price C. When the market price is greater than or equal to the call price D. Whenever the funds can be reinvested E. When interest rates increase above the coupon rate 2. Warrants are considered to highly speculative because: A. they are attached to the bond issue B. they have a short life and their value is magnified by movements in the stock price C. the intrinsic value is highly volatile D. ownership of warrnats provides no dividends or interest

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SVG Corp’s stock will pay D1 =3.00, D2 =8.00, D3 =12.00, and D4 =23. After Year 4, the dividends will grow at 6% forever. Investors require a rate of return of 14%. What price will they pay for the stock?

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1. A local government rewards a landscaping company a contract worth $1.2 million per year for five years for maintaining public parks. The landscaping company will need to buy some new machinery before they can take on the contract. If the cost of capital is 7%, what is the most that this equipment could cost if the contract is to be worthwhile for the company? a. $4.55 million b. $4.61 million c. $4.92 million d. $5.26 million

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Whitts BBQ would like to issue some semiannual coupon bonds at par. Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent. What coupon rate should Whitts BBQ set on its bonds? 9.50 percent 9.16 percent 10.00 percent 9.00 percent 9.68 percent

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1. An investment has a required return of 13 percent. The cash flows, in order, are -42,000 (initial cost), 16500 (CF1), 28400 (CF2), and 7500 (CF3). Based on the IRR, should this project be accepted? Why or why not? a. No, the IRR exceeds the required return by about 0.06% b. No, the IRR is less than the required return by about 0.94% c. Yes, the IRR exceeds the required return by about 0.06% d. Yes, the IRR exceeds the required return by about 0.94% e. Yes, the IRR is less than the required return by about 0.06%

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You want to retire in 22 years. To fund the retirement, you deposit $10,000 into an account now and plan to save an equal amount each year. Once you retire, you want to withdraw $45,000 at the end of each year for 18 years. r=6%. How much do you need to save at the end of each year for the next 22 years?

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You want to retire in 30 years. To fund the retirement, you plan to save an equal amount each year for the next 30 years. Once you retire, you want to withdraw $50,000 at the end of each year for 25 yers. r=6%. Howm uch do you need to save at the end of each year for the next 30 years?

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You want to withdraw $3000 once year at the end of each year for the next 5 years. r=8% How much money do you need to deposit now to fund the account fully?

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You want your portfolio beta to be 0.95. Currently, your portfolio consists of $4,000 invested in stock A with a beta of 1.47 and $3,000 in stock B with a beta of 0.54. You have another $9,000 to invest and want to divide it between an asset with a beta of 1.74 and a risk-free asset. How much should you invest in the risk-free asset?

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Warr Corporation just paid a dividend of $1.25 a share (that is, D0 = $1.25). The dividend is expected to grow 10% a year for the next 3 years and then at 3% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places.

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Spacefood Products will pay a dividend of $2.40 per share this year. It is expected that this dividend will grow by 3% per year each year in the future. What will be the current value of a single share of Spacefood’s stock if the firm’s equity cost of capital is 10%? A) $24.00 B) $23.97 C) $30.22 D) $34.29

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Spacefood Products will pay a dividend of $2.40 per share this year. It is expected that this dividend will grow by 3% per year each year in the future. What will be the current value of a single share of Spacefood’s stock if the firm’s equity cost of capital is 10% a) $24.00 B) 23.97 c) 30.22 d) 34.29 please show work!

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Statement of Cash Flows Ann’s Flowers, Inc. reported 2008 net income of $1 million and depreciation of $250,000. The top part of Ann’s Flowers, Inc.’s 2007 and 2008 balance sheets is listed below (in millions of dollars). Current assets:

2007

2008

Current liabilities

2007

2008

Cash and marketable securities

$3

$2

Accrued wages and taxes

$1

$1

Accounts receivable

4

5

Accounts payable

3

4

Inventory

6

5

Notes payable

9

7

Total

$13

$12

Total

$13

$12

What is the 2008 net cash flow from operating activities for Ann’s Flowers, Inc.? $2,250,000 $1,250,000 $1,000,000 $-1,000,000

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Statement of Retained Earnings Triplette, Corp. began the year 2008 with -$5 million in retained earnings. The firm earned net income of $10 million in 2008 and paid $2 million to its preferred stockholders and $1 million to its common stockholders. What is the year-end 2008 balance in retained earnings for Triplette? $2 million $8 million $5 million $18 million

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Statement of Retained Earnings Night Scapes, Corp. began the year 2008 with $10 million in retained earnings. The firm suffered a net loss of $2 million in 2008 and yet paid $2 million to its preferred stockholders and $1 million to its common stockholders. What is the year-end 2008 balance in retained earnings for Night Scapes? Present Value of an Annuity What is the present value of a $1,000 annuity payment over 8 years if interest rates are 10 percent?

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1.A firm sells part of the equity of a subsidiary of its firm to public in order to unlock value. It trades as a separate entity, but the parent firm retains partial ownership. This is an example of activities represented by ____. a)Carve outs b)Secured debt c)Private placements d)Private equity fund e)Shelf registrations f)Securitizations

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1) Which of the following is considered a capital component for the purpose of calculating the weighted average cost of capital (WACC)? A) Accounts receivables. B) Accruals. C) Accounts payable. D) Preferred stock. 2) The cost of a particular source of capital (debt, preferred stock, common stock) is equal to the investor’s required rate of return after adjusting for the effects of both flotation costs (i.e., the commission fee for the issuance of bonds and stocks) and corporate taxes. True False 3) A preferred stock is valued as a: A) constant growth stock. B) fixed coupon rate bond. C) zero coupon stock. D) perpetuity. 4) Which one of the following is a logical assumption concerning capital structure weights? A) The weights are constant over time. B) A new bond issue will reduce the weight of the firm’s preferred stock. C) The redemption of a bond issue will increase the weight of the firm’s debt. D) The issuance of additional shares of common stock will not change the weight of the preferred stock. 5) If D represents debt, E represents equity, and P represents preferred, then the capital structure weight of debt is computed as: A) D/E B) D/(D+E) C) D/(D+E+P) D) D/ (E+P) 6) Suppose your company has an equity beta of 0.58 and the current risk-free rate is 6.1%. If the expected market risk premium is 8.6%, what is your cost of equity capital? A) 6.1% B) 8.6% C) 11.1% D) 14.7%. 7) Bouchard Company’s stock sells for $20 per share, its last dividend (D0) was $1.00, and its growth rate is a constant 6%. What is its cost of common stock? A) 5.3% B) 11.0% C) 11.3% D) 11.6% 8) If a firm’s before-tax cost of debt is 10% and the firm has a 30% marginal tax rate, what ‘s the firm’s after-tax cost of debt? A) 3.0% B) 7.0% C) 10.0% D) None of above is correct. 9) A company has preferred stock that can be sold for $50 per share. The preferred stock pays an annual dividend $5. Therefore, the cost of preferred stock is: A) 5.67% B) 6.00% C) 9.43% D) 10.0% 10) MS Energy has a target capital structure of 30% debt, 10% preferred stock, and 60% common equity. The company’s after-tax cost of debt is 5%, its cost of preferred stock is 8%, and its cost of retained earnings is 12%. What is the company’s weighted average cost of capital if retained earnings are used to fund the common equity portion? A) 8.0% B) 9.50% C) 10.20% D) 12.80%.

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1.Which of the following would you expect to occur in the bond market during a US recession? (There is just one correct answer.) a)US government bonds to perform better than US corporate bonds b)The rate premium on US corporate bonds to fall c)US corporate utility bonds to perform worse than financial and industrial US corporate bonds d)Assuming nominal risk free rates decline the same amount for all US government bonds, short-term government bonds should perform better than long-term government bonds

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1) Adventure Outfitter Corp. can sell common stock for $27 per share and its investors require a 17% return. However, the administrative or flotation costs associated with selling the stock amount to $2.70 per share. What is the cost of capital for Adventure Outfitter if the corporation raises money by selling common stock? A) 27.00% B) 18.89% C) 18.33% D) 17.00% 2) A company has preferred stock that can be sold for $21 per share. The preferred stock pays an annual dividend of 3.5% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal $1.25 per share. The company’s marginal tax rate is 35%. Therefore, the cost of preferred stock is A) 18.87%. B) 17.72%. C) 14.26%. D) 12.94%. 3) Sentry Manufacturing paid a dividend yesterday of $5 per share (D0 = $5). The dividend is expected to grow at a constant rate of 8% per year. The price of Sentry Manufacturing’s stock today is $29 per share. If Sentry Manufacturing decides to issue new common stock, flotation costs will equal $2.50 per share. Sentry Manufacturing’s marginal tax rate is 35%. Based on the above information, the cost of retained earnings is A) 28.38%. B) 24.12%. C) 26.62%. D) 31.40%. 4) The risk free rate of return is 2.5% and the market risk premium is 8%. Rogue Transport has a beta of 2.2 and a standard deviation of returns of 28%. Rogue Transport’s marginal tax rate is 35%. Analysts expect Rogue Transport’s dividends to grow by 6% per year for the foreseeable future. Using the capital asset pricing model, what is Rogue Transport’s cost of retained earnings? A) 16.4% B) 17.7% C) 19.6% D) 20.1% 5) The DEF Company is planning a $64 million expansion. The expansion is to be financed by selling $25.6 million in new debt and $38.4 million in new common stock. The before-tax required rate of return on debt is 9 percent and the required rate of return on equity is 14 percent. If the company is in the 35 percent tax bracket, what is the firm’s cost of capital? A) 8.92% B) 9.89% C) 11.50% D) 10.74% 6) Texas Transport has five possible investment projects for the coming year. Each project is indivisible. They are: Project Investment (million) IRR A $ 6 18% B $10 15% C $ 9 20% D $ 4 12% E $ 3 24% The firm’s weighted marginal cost of capital schedule is 12 percent for up to $6 million of investment; 16 percent for between $6 million and $18 million of investment; and above $18 million the weighted cost of capital is 18 percent. If Texas Transport is only using IRR to choose their projects, they will decide that their optimal capital budget is A) $12 million. B) $18 million. C) $23 million. D) $28 million. 7) Given the following information on S & G Inc.’s capital structure, compute the company’s weighted average cost of capital. Type of Percent of Before-Tax Capital Capital Structure Component Cost Bonds 40% 7.5% Preferred Stock 5% 11% Common Stock (Internal Only) 55% 15% The company’s marginal tax rate is 40%. A) 13.3% B) 7.1% C) 10.6% D) 10% 8) Project W requires a net investment of $1,000,000 and has a payback period of 5.6 years. You analyze Project W and decide that Year 1 free cash flow is $100,000 too low, and Year 3 free cash flow is $100,000 too high. After making the necessary adjustments A) the payback period for Project W will be longer than 5.6 years. B) the payback period for Project W will be shorter than 5.6 years. C) the IRR of Project W will increase. D) the NPV of Project W will decrease. 9) Project Alpha has an internal rate of return (IRR) of 15 percent. Project Beta has an IRR of 14 percent. Both projects have a required return of 12 percent. Which of the following statements is MOST correct? A) Both projects have a positive net present value (NPV). B) Project Alpha must have a higher NPV than Project Beta. C) If the required return were less than 12 percent, Project Beta would have a higher IRR than Project Alpha. D) Project Beta has a higher profitability index than Project Alpha. 10) DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI’s required rate of return is 8%. What is the payback period of this project? A) 4.00 years B) 3.09 years C) 2.91 years D) 2.50 years 11) DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI’s required rate of return is 8%. What is the net present value of this project? A) $104,089 B) $100,328 C) $96,320 D) $87,417 12) Project LMK requires an initial outlay of $400,000 and has a profitability index of 1.5. The project is expected to generate equal annual cash flows over the next twelve years. The required return for this project is 20%. What is project LMK’s net present value? A) $600,000 B) $200,000 C) $120,000 D) $80,000 13) Raindrip Corp. can purchase a new machine for $1,875,000 that will provide an annual net cash flow of $650,000 per year for five years. The machine will be sold for $120,000 after taxes at the end of year five. What is the net present value of the machine if the required rate of return is 13.5%. A) $558,378 B) $513,859 C) $473,498 D) $447,292 14) You are in charge of one division of Yeti Surplus Inc. Your division is subject to capital rationing. Your division has 4 indivisible projects available, detailed as follows: Project Initial Outlay IRR NPV 1 2 million 18% 2,500,000 2 1 million 15% 950,000 3 1 million 10% 600,000 4 3 million 9% 2,000,000 If you must select projects subject to a budget constraint of 5 million dollars, which set of projects should be accepted so as to maximize firm value? A) Projects 1, 2 and 3 B) Project 1 only C) Projects 1 and 4 D) Projects 2, 3 and 4 15) Kohler Manufacturing typically achieves one of three production levels in any given year: 8 million pounds of steel, 10 million pounds of steel, or 16 million pounds of steel. In tracking some of its costs, Kohler’s controller discovered one cost that was $10 per pound no matter what the production level for the year. This is an example of a A) variable cost. B) fixed cost. C) semivariable cost. D) semifixed cost. 16) QuadCity Manufacturing, Inc. reported the following items: Sales = $6,000,000; Variable Costs of Production = $1,500,000; Variable Selling and Administrative Expenses = $550,000; Fixed Costs = $1,350,000; EBIT = $2,600,000; and the Marginal Tax Rate =35%. QuadCity’s break-even point in sales dollars is A) $2,050,633. B) $2,197,500. C) $2,438,750. D) $2,785,000. 17) Based on the data contained in Table A, what is the break-even point in units produced and sold? TABLE A Average selling price per unit $18.00 Variable cost per unit $13.00 Units sold 400,000 Fixed costs $650,000 Interest expense $ 50,000 A) 130,000 B) 140,000 C) 150,000 D) 180,000 18) ACME, Inc. reported the following income statement for 2009: Sales

$2,500,000

Variable Costs

900,000

Fixed Operating Costs

700,000

EBIT

900,000

Interest Expense

200,000

EBT

700,000

Taxes (30%)

210,000

Net Income

$490,000

Earnings Per Share

$4.90

If ACME’s sales next year increase by 20%, what will ACME’s earnings per share be? A) $5.76 B) $6.45 C) $7.14 D) $7.58 19) A firm’s optimal capital structure occurs where? A) EPS are maximized, and WACC is minimized. B) Stock price is maximized, and EPS are maximized. C) Stock price is maximized, and WACC is maximized. D) WACC is minimized, and stock price is maximized. 20) One component of a firm’s financial structure which is NOT a component of its capital structure is A) common stock. B) accounts payable. C) long-term debt. D) preferred stock.

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1.) (Inflation and interest rates) You’re considering an investment that you expect will produce an 8 percent return next year, and you expect that your real rate of return on this investment will be 6 percent. What do you expect inflation to be next year? 2.) (Inflation and interest rates) Assume the expected inflation rate to be 4 percent. If the current real rate of interest is 6 percent, what ought the nominal rate of interest to be? 3.) (Working with an income statement and balance sheet) Prepare an income statement and a balance sheet from the following scrambled list of items. What is the firm’s net working capital and debt ratio?

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1.In 2012, Apple’s stock was up 31.4%. Its P/E fell from 14.632 to 12.054 while EPS rose from $27.68 to $44.14. Assume you believe that Apple’s P/E will rise in 2013 (let’s be optimistic, after-all, it is now lower than the overall market’s P/E) to 13.0. This may occur if people believe the firm has a better outlook (lower risk or better growth). In 2013, let’s also assume that EPS rises to $45.00. Based on your estimates, what will be the stock return (assume no dividends) of Apple in 2013? a)-7.8% b)-5.9% c)1.9% d)7.8% e)9.7% f)9.9% g)11.8%

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1.Assume there are a bunch of mortgages that are supposed to pay principal payments and interest payments of $2100 during the year are pooled together and sold as securities. These securities have tranches which include I, II, III, and IV. Tranche I is supposed to collect $1000 in principal, tranche II is supposed to collect $500 in principal, tranche III is supposed to collect $300 in principal, and Tranche IV is supposed to collect $200 in principal. Tranche IV has the highest yield assuming that all principal is paid. The annual total interest cost is $100, and this is paid before principal is paid to any of the tranches. Assume that homeowners default on their mortgages and they only pay $1200 during the year. How much does tranche II collect in principal? a)$0 b)$100 c)$200 d)$300 e)$400 f)$1200 g)$1400 h)$2100

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One-year Treasury bills currently earn 4.75 percent. You expected that one year from now, one-year Treasury bill rates will increase to 6.15 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? 6.08% 5.16% 5.27% 5.45%

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wire house purchases its inventory one quarter to the quarter of sale. The purchase price is 55 percent of the sales price. The accounts payable period is 45 days. The accounts payable balance at the begining of quarter one is 62,000. What is the amount of the expected disbursements for quarter two given the folowing expected quarterly sales? quarter 1————- 32,000 quarter 2…………… 36,000 quarter 3…………… 53,000 quarter 4………….. 54,000

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The average annual return over the period 1886-2006 for stocks that comprise the S&P 500 is 10%, and the standard deviation of returns is 20%. Based on these numbers, what is a 95% confidence interval for 2007 returns? Question 4 options: A) -15%,25% B) -20%,40% C) -30%,50% D) -30%,40%

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You are analyzing a project and have developed the following estimates: unit sales = 1,320, price per unit = $79, variable cost per unit = $43, fixed costs = $24,900. The depreciation is $11,300 a year and the tax rate is 40 percent. What effect would an increase of $1 in the selling price have on the operating cash flow?

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ABC Company earned $673,411 in taxable income for the year. How much tax does the company owe on this income? ABC recently reported $34,893 of sales, $6,422 of operating costs other than depreciation, and $2,145 of depreciation. The company had $4,440 of bonds that carry a 7% interest rate, and its income tax rate was 39%. How much was its net cash flow? In 2012, ABC had operating income (EBIT) of $19,529, interest expense of $1,491, and dividend expense of $3,145. If the tax rate is 44%, what is the transfer to Retained Earnings? Enter your answer rounded off to two deci

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avril synchronistics will pay a dividend of $1.30 per share this year. it is expected that this dividend will grow by 5% each year in the future. what will be the current value of a share of avril’s stock if the firm’s equity cost of capital is 14%? 9.23 15.16 14.44 9.28

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Assume that John pays income taxes at a 30 percent rate. He currently owns a not-for-profit (muncipal) bond that pays 5 percent interest. What interest rate would have to be set on a for-profit (corporate) bond to produce the same amount of usable (after-tax) income?

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Assume the WACC for a firm if it was unlevered is 8%, beta unlevered is 1.0, the market return is 8%, and the risk free rate is 2%. Also assume that the firm has $100 in debt and $100 in equity and that its tax rate is 40%. Based on this information and using Hamada’s formula, what is the premium added to the unlevered cost of equity due to financial leverage/risk? (Hint: see slide 19 of the Capital Structure slides and pages 595-6 in the book and do not forget to calculate the market risk premium).

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Assuming all else is equal, the more financial leverage (i.e., the more debt and associated interest expense) the firm has the more volatile net income and ROE will be to changes in EBIT. a)True b)False

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Assume your firm is an auto manufacturer. Its fixed cost for a certain type of car is $5 billion. The variable cost per unit is $18,000, and you sell the car for $30,000. How many cars must your firm sell to break even?

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Assume that Goodhealth clinic has fixed costs of $ 1million and a total cost forecast of $1.5 million at a volume of 20,000 patient visits. What is the clinic’s variable cost rate?

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If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas? Answer international finance

private placements

corporate finance

capital management

investments

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Assume the firm, called XYZ, is acquired for $220 (the price for the assets = new invested capital) by a private equity firm. The private equity firm issues substantial debt to buy the firm, which leads to a high cost of equity and debt; although, it hopes to improve the firm and earn a high ROE and return on capital to compensate for this added risk. Values of firm XYZ before acquisition $100 Sales $18 EBIT (18% of sales) $4 Interest (4% interest rate on debt) $14 EBT 40% Tax rate $8.4 Net income $200 Assets = invested capital $100 Debt $100 Equity 8.40% ROE (net income / equity) 5.40% ROIC (NOPAT / invested capital) 8.00% Cost of equity 2.40% After-tax cost of debt 5.20% WACC (using book values) 0.20% EVA (i.e., ROIC “?o WACC) To compute the new WACC: The old equity is gone since the firm is purchased. To fund the purchase, the private equity firm assumes all existing $100 debt at the current 4% interest rate, borrows $100 in new debt with a 12% interest rate, and contributes $20 in equity. The cost of this contributed equity is 20%. The new firm has a 40% tax rate. Additional information to compute the new ROE and ROIC: Following the acquisition, EBIT rises from 20% of sales from 18% of sales and sales rise to $105 as the private equity firm improves operations, and the tax rate is unchanged. Note 1: The first question is very similar to the problem discussed in class. Note 2: You should use the beginning value of equity, debt, and assets (invested capital) immediately after the acquisition for the denominator in the new ROE and ROIC calculations. 1.What is the new ROE? a)8.70% b)12.00% c)14.00% d)15.00% e)44.70% 2.What is the new WACC? a)4.00% b)6.18% c)8.36% d)9.09% e)9.42% 3.If the private equity firm uses EVA (i.e., ROIC “?o WACC) as a criteria for determining whether to make acquisitions, should the private equity firm acquire XYZ firm? (Note: you need the answer to question 9 for this question. There is no partial credit for carry forward errors since there are only five choices for question 9 and you know one is correct.) a)Yes b)No c)Cannot be determined based on information provided

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amazon.com stock prices gave a realized return of 5%, -5%, 10%, and -10% over four successive quarters. What is the annual realized return for Amazon.com for the year?

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_____ allows a stock holder to purchase the same percentage of a new issue of stock as currently held. Answer

Majority voting

A proxy

Absentee voting

Preemptive right

The value of an asset that, in the mind of a specific investor, is justified by the facts is the ____ value. Answer

intrinsic

takeover

market

terminal

Given: Intrinsic Value = IV; Market Price = MP. A profitable trading opportunity could exist if _____. [Video] Answer

A. IV = MP

B. MP

C. IV

both B. and C.

The method of calculating the value of a share of stock used in this course is _____. Answer

PV ( expected future dividends)

PV ( expected EPS )

FV ( expected future dividends )

As market interest rates ___, the value of a bond will ____. Answer

a. rise, rise

b. rise; fall

c. fall; fall

d. fall; rise

Both b. and d.

Returns a firm earns in excess of the WACC would be expected to go to ______. [Video] Answer

debt

preferred stock

common equity

The cost of debt calculation (used in the WACC) supports the ____. [Video] Answer

independent corporation policy

ideal capital structure

discounted cash flow theory

The cost of debt money is ____. Answer

dividends

interest

depreciation

the Liquidity Premium

The risk that a borrower will not repay part or all monies owed is a ____. Answer

default premium

liquidity premium

maturity risk premium

reinvestment rate risk

When long-term interest rates are lower than short-term interest rates, the yield curve is said to be ______ . Answer

inverted

humped

normal

rather strange

A graph of debt securities yields versus time to maturity for similar risk securities is called a(n) ____. Answer

ugly plot

yield curve

annuity plot

none of the above

There are three components of the nominal interest rate; the component indicating the compensation an investor must receive for giving up immediate gratification of using money is the _____. [Video] Answer

risk premium

expected inflation

real return

expected variance

The ___ is the price asked by an investor who owns the bond and wishes to sell it. Answer

asked price

bid price

spread

par value

A(n) ___ bond can be exchanged for stock. Answer

putable

convertible

indexed

income

Which of the following are characteristics of bonds? Answer

A. Par Value

B. Dividends

C. Maturity

both A. and C.

Companies needing money for a short time usually _____ and needing to make long term investments usually _____. Answer

issue stock; issue bonds

issue stock; borrow from banks

borrow from banks; borrow from credit unions

borrow from banks; issue bonds

[Extra Credit] Two investors are evaluating GE’s stock for possible purchase. They agree on: the value of D1; the expected growth of future dividends; and the riskiness of the stock. One investor normally holds a stock for 2 years; the other investor normally holds a stock for 10 years. Based upon the dividend valuation model, both investors ____ pay the same price for the stock because ____. Answer

would; the present value of future dividends is the same.

would; the holding periods are not the same.

would not; prices do not usually change.

would not; time factors do not matter.

[Extra Credit] The reason an entity calculates its WACC is shown in which of the following? Answer

Income Statement

Capital Structure

Statement of Cash Flows

Net Working Capital

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Allie Dawson is trying to decide whether or not she can afford the monthly payment of a loan to purchase a new car. The car costs $19,600. She is considering a 5-year loan at 6% interest. How much would her monthly payment be for a loan financing the full cost of the car? Do not include $ in your answer.

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establish a pricing structure for radiology on a per-procedure basis. present budgetary data is presented below: budget procedures $10,000 budgeted cost $400,000 desired profit $80,000 what rate must be set to generate the required $80,000 in profit in the preceding example?

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establish a pricing structure for radiology on a procedure basis. budgeted procedures $10,000 budgeted cost $400,000 desired profit $80,000 If the forecasted volume increased to 12,000 procedures and budgeted costs increased to $440,000, while all other variables remained constant, what price should be established?

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Here is Establishment Industries’ market-value balance sheet (Figures in millions):

Net working capital

$

Long-term assets

Value of firm

$

920

Debt

$

2,980

Equity

1,400 2,500

3,900

$

3,900

The debt is yielding 6.0%, and the cost of equity is 15.0%. The tax rate is 36%. Investors expect this level of debt to be permanent.

a.

What is Establishment’s WACC? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

WACC

b.

%

How would the market-value balance sheet change if Establishment retired all its debt. (Leave no cells blank – be certain to enter “0” wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.)

New Market-Value Balance Sheet (figures in millions) Net working capital

$

Debt

Long-term assets

$

Equity

Value of firm

$

Total

$

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What would you estimate to be the required rate of return for equity investors (rs) if a stock sells for $40.00 and will pay a $4.40 dividend that is expected to grow at a constant rate of 5%? Show your work and the formula.

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4. Assume the WACC for a firm if it was unlevered is 8%, beta unlevered is 1.0, the market return is 8%, and the risk free rate is 2%. Also assume that the firm has $100 in debt and $100 in equity and that its tax rate is 40%. Based on this information and using Hamada’s formula, what is the premium added to the unlevered cost of equity due to financial leverage/risk? (

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4.) (Price book) Greene Inc.’s balance sheet shows a stockholders’ equity book value (total common equity) of $750,500. The firm’s earnings per share were $3, resulting in a price/earnings ratio of 12.25X. There are 50,000 shares of common stock outstanding. What is the price/book ratio? What does this indicate about how shareholders view Greene Inc.? 5.) (Ratio analysis) The balance sheet and income statement for the J.P. Robard Mfg. Company are as follows:

Calculate the following ratios: Current ratio Operating return on assets Times interest earned Debt ratio Inventory turnover Average collection period Total asset turnover Fixed-asset turnover Operating profit margin Return on equity

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What does the early evidence on the ability of behavioral Investing to enhance performance tell us

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Dolores Umbridge has just received her credit card bill. The APR on this account is 16.9% applied over 12 periods. Her account balance is $6,933.00 and the statement lists her average daily balance as $6,381.00. If she makes her minimum payment of $127.00, she will reduce her balance by: Forgot how to do these please solve

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What does it mean when a bond is issued at a premium or a discount? In your response, discuss the difference between the effective and stated interest rate.

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du pont Formula According to DuPont analysis: Return on Equity = Net Profit Margin Af— Asset Turnover Af— Financial Leverage

Return on Equity =

Net Income

Af—

Sales

Sales

Total Assets

Total Equity

Af—

Total Assets

Analysis

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Determinants of Interest Rate for Individual Securities A particular security’s default risk premium is 3 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 2.25 percent. The security’s liquidity risk premium is 0.75 percent and maturity risk premium is 0.90 percent. The security has no special covenants. What is the security’s equilibrium rate of return? 1.78% 3.95% 17.8% 8.90%

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Dog Up! Franks is looking at a new sausage system with an installed cost of $465,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $67,000. The sausage system will save the firm $225,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $26,000. If the tax rate is 35 percent and the discount rate is 9 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

My answer is wrong. Please help!

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You desire the lowest WACC for your business. You determine that as the amount of debt rises, the cost of debt and equity will rise. Which option below is the one you will pursue if the tax rate is 25%? A: D/(D+E) = 10% Before tax cost of debt = 4% Cost of equity = 8.0% B: D/(D+E) = 25% Before tax cost of debt = 5% Cost of equity = 8.5% C: D/(D+E) = 50% Before tax cost of debt = 6% Cost of equity = 10.0% D: D/(D+E) = 75% Before tax cost of debt = 9% Cost of equity = 12.0%

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The difference between the rights on and ex rights common stock price is equal to the value of a right True or False

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A company is investigating the effect on its cost of capital with respect to the tax rate. Suppose there is a capital structure of 20% debt, 10% preferred stock, and 70% common stock. The cost of financing with retained earnings is re = 12%, the cost of preferred stock financing is rPS = 7%, and the before-tax cost of debt is rd = 9%. Calculate the weighted average cost of capital (WACC) given a tax rate of 35%.

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My Company is Nike (NKE) and i need to find the following information 1) Estimate the cost of debt (rD): You can find bond information for current bonds outstanding at the bond web page finra.org. a) How many different bonds does the company currently have outstanding? Number of bonds = X i) What is the length of each bonds? X ii) Do the bonds have any special features (puts, calls, sinking funds, etc)? X b) What is the cost of debt of the most recently issued bond? X

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A company’s CFO wants to maintain a target debt-to-equity ratio of A??1 (this implies that D/E = 0.25%). If the WACC is 18.6%, and the pre-tax cost of debt is 9.4%, what is the cost of common equity (rs) assuming a tax rate of 34%? Show your work and appropriate formulas.

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Cox Footwear pays a constant annual dividend. Last year, the dividend yield was 2.5 percent when the stock was selling for $26 a share. What is the current price of the stock if the current dividend yield is 3.1 percent?

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A currency trader observes that in the spot exchange market, 1 U.S. dollar can be exchanged for 4.4 Israeli shekels or for 102.89 Japanese yen. What is the cross-exchange rate between the yen and the shekel; that is, how many yen would you receive for every shekel exchanged? Round your answer to the nearest sen. Note: A sen is 1/100th of a yen. yen per shekel

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The current floating exchange rate system began when the gold standard ended in _____. Answer 1850

1933

1944

1971

1987 A system under which exchange rates are not fixed by government policy is _____/ Answer floating exchange rates

pegged exchange rates

convertible exchange rates

forward rates The end of the gold standard resulted in which business risk? Answer Pegged currency

Exchange Rate Risk

Eurodollars

All of the above U.S. dollars deposited in foreign banks are called ___ and interest paid on these deposits is normally tied to the ______ rate. Answer non-foreign deposits; FED funds

indirect dollars; Discount Funds

Eurodollars; LIBOR

none of the above ____ is when a country establishes a fixed exchange rate with another currency. Answer Pegged exchange rate

Convertible rate

both of the above

Floating exchange rate

Spot exchange rate

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Describe the circumstances that might create concern or wariness about a high margin business.

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Class Corp has 10,000,000 outstanding shares. There are 11 directors on the firms board. The Becker family owns 2,300,000 shares of Coase Corp. How many directors can the Becker family be assured of electing by themselves if Coase Corp uses majority voting. A. 0 b. 1 c. 2 d. 3

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The common stock and debt of Northern Sludge are valued at $60 million and $40 million, respectively. Investors currently require a 16.7% return on the common stock and a 7.0% return on the debt. If Northern Sludge issues an additional $18 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

New return on equity

%

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Common-size financial statements present all balance sheet account values as a percentage of: Answer the forecasted budget.

sales.

total equity.

total assets.

last year’s account value.

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1. A corporation: Answer is ultimately controlled by its board of directors.

is a legal entity separate from its owners.

is prohibited from entering into contractual agreements.

has its identity defined by its bylaws.

has its existence regulated by the rules set forth in its charter

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Construct an equal-weighted (50/50) portfolio of investments B and D. What is the expected rate of return and standard deviation of the portfolio? Explain your results

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Consider the following two projects Initial Outlay Net cash flow each period 1 2 3 4 PRoject A $ 4000 $2003 $2003 $2003 $2003 PRoject B $4000 $10,736 a, calculate the net present value of each of the above projects, assuming a 14 percent discount rate b. if 14% is the required rate of the return for these projects, which project is preferred and why?

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Consider these two projects: Project

C0

C1

C2

C3

A

?$45

+$34

+$34

+$34

B

?70

+45

+45

+45

A. What is the NPV if the discount rate is 15%? NPV = $ “?”?”?”?”?”?”?”?”?”?”?. B. Which project has the higher NPV? Project “?”?”?”?”?”?.. C. What is the profitability index of two projects? PIA = PIB= D. Which has the higher profitability index? Project “?”?”?”?”?”?”?”?.

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Compute the payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent and the maximum allowable payback is 5 years. Time:

0

1

2

3

4

5

Cash flow:

“?o75

“?o75

0

100

75

50

3.67 years, reject 4.67 years, accept 3.67 years, accept 4.67 years, reject

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Under what conditions can a rate-based statistic yield a different accept/reject decision than NPV? 1. Independent projects that are evaluated at a high cost of capital. 2. Any projects that exhibit differences in scale or timing 3. Mutually exclusive projects that exhibit differences in scale or timing

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Consider the following balance sheet: Cash $ 70,000Accounts payable $ 30,000 Accounts receivable 30,000Long-term debt 20,000 Inventories 50,000Common stock 200,000 Net fixed assets 350,000Retained earnings 250,000 Total assets $500,000Total claims $500,000 Which of the following statements is most correct? a. short-term liabilities are reduced b. long-term liabilities are reduced c. Equity is reduced d. Inventories are reduced e. Cash is reduced

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The following are the expected 1 year T-bill rates for the next 4 years: 3%, 4%, 5%, and 6%. What would you expect the rate for 3 year securities would be?

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Which one of the following has the highest effective annual rate? Answer 6 percent compounded annually

6 percent compounded semi-annually

6 percent compounded quarterly

6 percent compounded monthly

All the other answers have the same effective annual rate

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Which one of the following indicators offers the best assurance that a project will produce value for its owners? Positive AAR Positive IRR Negative rate of return Positive NPV PI equal to zero

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Which of the following statements is CORRECT? a.The more depreciation a firm has in a given year, the higher its EPS, other things held constant. b.Typically, a firm’s DPS should exceed its EPS. c.Typically, a firm’s EBIT should exceed its EBITDA. d.If a firm is more profitable than average (e.g., Google), we would normally expect to see its stock price exceed its book value per share. e.If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation.

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Which one of the following statements is correct? Answer The APR is equal to the EAR for a loan that charges interest monthly.

The EAR is always greater than the APR.

The APR on a monthly loan is equal to (1 + monthly interest rate)12 – 1.

The APR is the best measure of the actual rate you are paying on a loan.

The EAR, rather than the APR, should be used to compare both investment and loan options.

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1. Which of the following statements is CORRECT? Most rapidly growing companies have positive free cash flows because cash flows from existing operations generally exceed fixed asset purchases and changes to net operating working capital.

Changes in working capital have no effect on free cash flow.

Free cash flow (FCF) is defined as follows: FCF = EBIT(1 – T) + Depreciation – Capital expenditures required to sustain operations – Required changes in net operating working capital.

Free cash flow (FCF) is defined as follows: FCF = EBIT(1 – T) + Capital expenditures.

Managers should be less concerned with free cash flow than with accounting net income. Accounting net income is the “bottom line” and represents how much the firm can distribute to all its investors–both creditors and stockholders.

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which of the following statements is FALSE? A) the most common valuation multiple is the price-earnings ratio B) you should be willing to pay proportionally more for a stock with lower current earrings C) a firm’s price-earnings ratio is equal to the share prive divided by its earnings per share D) the intuition behind the use of the price-earnings ratio is that when you buy a stock, you are in a sense buying the rights to the firm’s future earnings, and differences in the scale of firm’s earnings are likely to persist.

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Which one of the following statements is correct concerning a firm’s fixed assets? Answer The market value is the expected selling price in today’s economy.

The market value is affected by the accounting method selected.

The market value is equal to the initial cost minus the depreciation to date.

The book value is equal to the market value minus the accumulated depreciation.

The book value is the greater of the initial cost or the current market value.

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Which of the following investments allows investors to own assets indirectly via shares that are part of a pool of other investors? I) REIT; II) trust; III) option I only I and II I, II, and III III only

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Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? Answer Du Pont rate

External growth rate

Sustainable growth rate

Internal growth rate

Cash flow rate

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Which one of the following has nearly the same meaning as free cash flow? Answer Net income

Cash flow from assets

Operating cash flow

Cash flow to shareholders

Addition to retained earnings

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The following are primary purchases of preferred stock except a. Corporate investors b. individual investors c. Insurance companies

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If a firm starts selling its accounts receivable to a factor, how will the firm’s cash cycle change? The firm will increase its cash cycle since it will now have to wait longer for payment. The firm will decrease its cash cycle since accounts receivable is reduced. Depending on conditions, the cash cycle could either increase or decrease. There will be no change.

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A firms reports that in a certain year it had a net income of 4.5 million, depreciation expenses of 2.8 million, capital expenditures of 2.3 million, and Net Working Capital decreased by 1.5 million. What is the firm’s free cash flow for that year? A) 2.4 million B) 6.5 million C) 8.1 million D) 11.1 million Plese show work! Thanks!

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All of the following capital budgeting tools are suitable for non-normal cash flows except 1.MIRR 2.Discounted Payback 3.NPV

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Which of the following are benefits of a right offering? A. Rights offering increase return on equity B. Rights offering substantiate higher debt to equity ratios C. Rights offering have lower margin requirements

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Which of the following is not a very common feature of preferred stock? A. Voting rights b. cumulative dividends c. Call feature

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To finance the purchase, you have arranged for a 30-year mortgage loan for 80 percent of the $2,800,000 purchase price. The monthly payment on the loan will be $22,000. What is the principal repayment on the 20th payment?Type your question here

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“Finance and Valuation” Please respond to the following: Describe a business that you can see yourself owning and discuss the most efficient way to raise capital to either start or expand the business. Explain your rationale. Discuss the advantages for firms to raise capital in markets other than their domestic or home market. Provide examples to support your answer.

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A firm is considering two mutually exclusive projects that have the annual cash flows shown below. Based on NPV analysis, which project should be accepted? The required rate of return is 7.0000% Project A CFs 0-$-60, 1=$18, 2=$18, 3=$18, 4=$18, 5=$18, 6=$18 Project B CFs 0=-$45, 1=$30, 2=$30

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A firm can lease a truck for 5 years at a cost of $45,000 annually. It can instead buy a truck at a cost of $95,000, with annual maintenance expenses of $25,000. The truck will be sold at the end of 5 years for $35,000. The cost of capital is 15%. Which is a better option? A. EAC of Lease = B. PV of all Costs of Purchase = C. EAC of Purchase = D. Better Option is to “?”?”?”?”?”?”?”?”?”?”?”?”?”?.

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if a firm is operating at its optimal capital structure then its weighted average cost of capital must be

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Check out the Big Mac index at: http://www.economist.com/content/big-mac-index. Does purchasing power parity (PPP) hold for Big Mac’s? Why or why not?

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When choosing between two mutually exclusive projects using the payback period method for evaluating capital projects, one would choose

either project if they both are more than managers’ maximum payback period. the project that pays back the soonest if it is equal to or less than managers’ maximum payback period. the project that pays back the soonest. neither project if they both are less than managers’ maximum payback period.

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We are evaluating a project that costs $887,000, has an fifteen-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 110,000 units per year. Price per unit is $36, variable cost per unit is $23, and fixed costs are $894,983 per year. The tax rate is 37 percent, and we require a 18 percent return on this project. a.

The accounting break-even point is units. (Round your answer to the nearest whole number. (e.g., 32))

b.

The base-case cash flow is $ and NPV is $ . (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16)) The sensitivity of NPV to changes in the sales figure is $ . (Do not include the dollar sign ($). Round your answer to 3 decimal places. (e.g., 32.161)) If there is a 500-unit decrease in projected sales, we would expect the NPV to change by $ . (Do not include the dollar sign ($). Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))

c.

The sensitivity of OCF to changes in the variable cost figure is $ . Therefore, a $1 decrease in estimated variable costs results in a $ change in OCF. (Do not include the dollar signs ($). Negative amount should be indicated by a minus sign. Round your answers to the nearest whole number. (e.g., 32))

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1. Lee pays one percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the: Answer annual percentage rate.

compounded rate.

effective annual rate.

perpetual rate.

simple rate.

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1. Letitia borrowed $6,000 from her bank 2 years ago. The loan term is 4 years. Each year, she must repay the bank $1,500 plus the annual interest. Which type of loan does she have? Answer Amortized

Blended discount

Interest-only

Pure discount

Complex

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Lisa Carson has the opportunity to receive $15,000 now or $22,000 in 4 years. If Lisa can earn 9 percent on her investments, what is the present value of the $22,000 payment? (do not use the dollar sign ($) in your answer).

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Kate and Richard just won $35,000 in the Pennsylvania state lottery. They decide to spend $9,000 now and put the remaining $26,000 in an investment earning 7 percent compounded annually. If they use the money in that investment for a vacation home in 9 years, approximately how much will they have available to put down on that home?

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Kennedy Air Services is now in the final year of a project. The equipment originally cost $28 million, of which 80% has been depreciated. Kennedy can sell the used equipment today for $7 million, and its tax rate is 40%. What is the equipment’s after-tax salvage value? Round your answer to the nearest cent. Write out your answer completely. For example, 13 million should be entered as 13,000,000.

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Lamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 65; and it currently pays after 5 days and takes discounts. Lamar plans to expand, which will require additional financing. Assume 365 days in year for your calculations. 1. If Lamar decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent. $ 2. What would be the nominal cost of that credit? Round your answer to two decimal places. % 3. What would be the effective cost of that credit? Round your answer to two decimal places. % 4. If the company could get the funds from a bank at a rate of 9%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Round your answer to two decimal places. % 5. Should Lamar use bank debt or additional trade credit? -SelectBank debt Additional trade credit

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Lamar Lumber Company has sales of $11 million per year, all on credit terms calling for payment within 30 days; and its accounts receivable are $1.65 million. Assume 365 days in year for your calculations. 1. What is Lamar’s DSO? Round your answer to two decimal places. days 2. What would DSO be if all customers paid on time? Round your answer to two decimal places. days 3. How much capital would be released if Lamar could take actions that led to on-time payments? Round your answer to the nearest cent. $

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Investment Return Rx Corp stock was $60.00 per share at the end of last year. Since then, it paid a $1.00 per share dividend. The stock price is currently $62.50. If you owned 400 shares of Rx, what was your percent return? 1.67% 5.83% 5.60% 4.17%

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Match the following with the items below: 1. Automated clearing house

The difference between the corporation’s recorded cash balance on its books and the amount credited to the corporation by the bank.

____

2. bankers’ acceptance

Is offered by banks and savings and loans for the deposit of funds at a given interest rate over a specified time period.

____

3. Dun & Bradstreet

Intermediate term obligations of the federal government with maturities from one to seven years.

____

4. certificates of deposit

A credit-rating agency that publishes information on over three million business establishments.

____

5. lock-box

Short-term obligations of the federal government with maturities up to one year.

____

6. Eurodollars

A procedure used to expedite cash flows to a business having accounts receivable.

____

7. compensating balance

An unsecured promissory note issued by large corporations to investors.

____

8. Treasury notes

A study of the positive and negative results that can be derived from a given course of action.

____

9. Treasury bills

A short-term security that arises from foreign trade.

____

10. commercial paper

U.S. dollars held on deposit by foreign banks and loaned out to anyone seeking dollars.

____

11. float

Transfers information between one financial institution and another via computer tape.

____

12. cost-benefit analysis

Banks typically require that this cash balance be held to indirectly pay for certain bank services.

____

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Match the following with the items below: 1. “temporary” current assets

Long-term interest rates reflect the average of expected short-term rates over the life of the long-term security.

____

2. self-liquidating assets

The financing and management of the current assets of the firm.

____

3. level production

Assets that are assumed to be long term in nature.

____

4. working capital management

Current assets that will not be reduced or converted to cash within the normal operating cycle of the firm.

____

5. expected value

Depicts in graphical form the relationship between interest rates and maturities for securities of equal risk.

____

6. trade credit

Financing provided by sellers or suppliers in the normal course of business.

____

7. market segmentation theory

Time periods in which financing may be difficult to find and interest rates may be quite high by normal standards.

____

8. point of sales terminals

Equal monthly production used to smooth out production schedules and employ manpower and equipment more efficiently.

____

9. term structure of interest rates

A representative quantity from a probability distribution arrived at by multiplying each outcome times the associated probability and summing up the products.

____

10. expectations hypothesis

Current assets that will be reduced or converted to cash within the normal operating cycle of the firm.

____

11. tight money

The relative convertibility of short-term assets to cash.

____

12. Liquidity

Computer terminals in retail stores that may be used for inventory control or other purposes.

____

13. “permanent” current assets

Assets that are converted to cash within the normal operating cycle of the firm.

____

14. fixed assets

The relationship of short and long-term interest rates relies on the maturity preference of various financial institutions.

____

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I need help with this please Phoebe realizes that she has charged too much on her credit card and has racked up $5,400 in debt. If she can pay $200 each month and the card charges 18 percent APR (compounded monthly), how long will it take her to pay off the debt? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Time to pay off the debt= years

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I need the answer with the comma on proper place place. I cant get it right, and I am getting help with all diferent answers….Please help If you start making $165 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 11.00 percent APR? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Future value annuity

$

What is the present value of this annuity? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Present value annuity

$

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I need Help please Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.

Time:

0

1

2

3

4

5

6

Cash flow

“?o$4,800

$1,210

$2,410

$1,610

$1,610

$1,410

$1,210

Use the PI decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)

PI

%

Should it be accepted or rejected?

Accepted Rejected

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I could use some help please Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.8, 1.2, 1.4, and 1.6, respectively. Assume all current and future projects will be financed with 25 percent debt and 75 percent equity, the current cost of equity (based on an average firm beta of 1.1 and a current risk-free rate of 5 percent) is 12 percent and the after-tax yield on the company’s bonds is 10 percent.

What will the WACCs be for each division? (Do not round intermediate calculations and round your final answers to 2 decimal places.)

WACCs Division A

%

Division B

%

Division C

%

Division D

%

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How long will it take you to save an adequate amount for retirement if you deposit $2,500 per quarter year into an account beginning today that’s pays an effective annual rate (EAR) of 4 percent if you wish to have a total of $1,000,000 at retirement?

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Look up the 6 currencies in the tables in the foreign exchange section of a current issue of The Wall Street Journal. Sample Exchange Rates: Wednesday, August 3, 2011 Direct Quotation: U.S. Dollars Required to Buy One Unit of Foreign Currency (1)

Indirect Quotation: Number of Units of Foreign Currency per U.S. Dollar (2)

British pound

1.6426

0.6088

Canadian dollar

1.0392

0.9622

Euro

1.4323

0.6982

Japanese yen

0.01297774

77.06

Mexican peso

0.0846

11.8205

Swedish krona

0.1577

6.3420

Direct Quotation: U.S. Dollars Required to Buy One Unit of Foreign Currency (1)

Indirect Quotation: Number of Units of Foreign Currency per U.S. Dollar (2)

British pound

1.6892

0.5920

Canadian dollar

1.0923

0.9155

Euro

1.5132

0.6609

Japanese yen

0.01321111

75.6939

Mexican peso

0.0862

11.6009

Swedish krona

0.1596

6.2657

Note: Column 2 equals 1.0 divided by Column 1. However, rounding differences do occur. Source: Adapted from The Wall Street Journal (online.wsj.com), August 4, 2011.

Sample Exchange Rates: current

Note: Column 2 equals 1.0 divided by Column 1. However, rounding differences do occur. Source: Adapted from The Wall Street Journal (online.wsj.com), current 1. What is the current exchange rate for changing dollars into 700 units of pounds? Round your answer to the nearest cent. Use minus sign to enter negative changes, if any. $ What is the current exchange rate for changing dollars into 700 units of Canadian dollars? Round your answer to the nearest cent. Use minus sign to enter negative changes, if any. $ What is the current exchange rate for changing dollars into 700 units of euros? Round your answer to the nearest cent. Use minus sign to enter negative changes, if any. $ What is the current exchange rate for changing dollars into 700 units of yen? Round your answer to the nearest cent. Use minus sign to enter negative changes, if any. $ What is the current exchange rate for changing dollars into 700 units of Mexican pesos? Round your answer to the nearest cent. Use minus sign to enter negative changes, if any. $ What is the current exchange rate for changing dollars into 700 units of Swedish kronas? Round your answer to the nearest cent. Use minus sign to enter negative changes, if any. $ 2. 3. What is the percentage gain or loss between the August 3, 2011, exchange rate and the current exchange rate for each of the currencies in Part a? Round your answers to two decimal places. Use minus sign to enter negative changes, if any. British pound

%

Canadian dollar

%

EMU euro

%

Japanese yen

%

Mexican peso

%

Swedish krona

%

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Luis took a mortgage loan 5 years ago for $120,000 at 7% interest for 15 years, to be paid in monthly payments. Now, a lender is offering him a new mortgage loan at 5% for 10 years. The new loan amount is $92,895, the outstanding loan balance of the existing loan.Suppose that a prepayment penalty of 3 % must be paid if Luis refinances the existing loan. Moreover, the lender who is making the new loan requires an origination fee of $3,000. Luis plans to hold the property for 10 years. Note: Luis has to pay the refinancing fees (i.e., the origination fee and the prepayment penalty) out of his pocket. (a) What is the total financing cost (not include the loan amount itself) if Luis decides to refinance the old loan? (b) What is the monthly saving that Luis could realize by refinancing? (c) Given the information provided here, should Luis refinance? Please support your answer by calculating the effective interest rate of the new loan. (d) Now suppose that Luis’s current income is low. The new lender allows him to pay a monthly payment of $200 for the new loan (i.e., the actual monthly payment to the lender is only $200, while the loan interest rate is 5%). In this situation, negative amortization occurs. What will be the accrued interest or the amount of increased loan balance for the loan three years later from now? (e) Assume that Luis has to borrow two loans in order to refinance. That is, he has to borrow a new mortgage ($70,000) at 5% for 10 years (i.e., the loan maturity and the amortization period are the same, 10 years) and another mortgage ($22,895) at 9% for 5 years (the loan maturity and the amortization period are the same, 5 years). In this case, with the same origination fee of $3,000 and the prepayment penalty of 3%, should Luis go ahead with the refinancing plan? Why?

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Imagine a firm has a temporary surplus of cash meant to fund an expansion project in the next 9 months. Which of the following statements is correct? The firm will probably want to invest this preferred stock. The firm will probably want to invest this surplus in U.S. Treasury bonds. The firm will probably want to invest this surplus in U.S. Treasury bills. The firm will probably want to invest this surplus in whichever security yields the highest return

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1. Highly liquid assets are: Answer on the right side of the balance sheet.

likely to produce a high rate of return.

sold quickly at close to full value.

all tangible assets..

include all intangible assets

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You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 13.00%. The firm will not be issuing any new stock. What is its WACC? a.

9.38%

b.

11.44%

c.

9.19%

d.

7.22%

e.

10.22%

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Can you show me how please FarCry Industries, a maker of telecommunications equipment, has 3 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds. Suppose the common shares are selling for $27 per share, the preferred shares are selling for $14.50 per share, and the bonds are selling for 98 percent of par.

What weight should you use for debt in the computation of FarCry’s WACC? (Round your answer to 2 decimal places.)

Weight used

%

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Payback is best used to evaluate which type of projects? Low-cost, long-term Any size of long-term project High-cost, short-term Low-cost, short-term High-cost, long-term

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Neither payback period nor discounted payback period techniques for evaluating capital projects account for

time value of money. market rates of return. cash flows that occur during payback. cash flows that occur after payback

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McDermott Technologies is evaluating a new project that requires $800,000 in new equipment. McDermott estimates that the new project will generate $900,000 in annual sales at the end of each of the next four years and that operating costs (excluding depreciation) will equal $400,000. Suppose the firm depreciates the equipment using the straight-line method over four years and the firm’s tax rate is 40%. Question 1: The project’s WACC is 9.8%, and the present value of the project’s OCFs is: ???? QUESTION 2: Suppose that McDermott uses Modified Accelerated Cost Recovery System (MACRS) depreciation rates instead. The applicable rates are 33%, 45%, 15% and 7%, respectively. Recalculate the firm’s OCFs and find their present value now (still assuming a WACC of 9.8%). Please show your work. Thanks in advance!!

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Need help with the following: Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the company’s outstanding bonds is 7.75%; its tax rate is 40%; the next expected dividend is $0.65 a share; the dividend is expected to grow at a constant rate of 6.00% a year; the price of the stock is $15.00 per share; the flotation cost for selling new shares is F = 10%; and the target capital structure is 45% debt and 55% common equity. What is the firm’s WACC, assuming it must issue new stock to finance its capital budget? a. 6.89% b. 7.26% c. 7.64% d. 8.04% e. 8.44%

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McDowell Industries sells on terms of 3/10, net 20. Total sales for the year are $1,192,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 66 days after their purchases. Assume 365 days in year for your calculations. 1. What is the days’ sales outstanding? Round your answer to two decimal places. days 2. What is the average amount of receivables? Round your answer to the nearest cent. $ 3. What is the percentage cost of trade credit to customers who take the discount? Round your answers to two decimal places. % 4. What is the percentage cost of trade credit to customers who do not take the discount and pay on Day 66? Round your answers to two decimal places. Nominal cost: % Effective cost: % 5. What would happen to McDowell’s accounts receivables if McDowell toughened up on its collection policy with the result that all nondiscount customers paid on the 20th day? Round your answers to two decimal places. DSO = days Average receivables = $

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Neville Longbottom has been asked to serve as a consultant on a building project and can get paid his fee up-front or at the end of the long project. He has agreed to do the consulting work for a fee of $10,000. This year Neville’s taxable income is expected to be around $35,000, but next year Neville is will be dropping to part-time and expects his taxable income to be around $12,500. Using Table 4.1 on page 107, how much less will Neville pay in taxes if he receives the money next year instead of this year? Do not use a $ in your answer. can someone help me with this? I never bought the textbook.

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Under normal operating conditions the board of directors is elected by a. Common stockholders b. preferred stockholders c. Bond holders d. None of the above

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Hubbard’s Pet Foods is financed 50% by common stock and 50% by bonds. The expected return on the common stock is 13.0%, and the rate of interest on the bonds is 7.0%. Assume that the bonds are default-free and that there are no taxes. Now assume that Hubbard’s issues more debt and uses the proceeds to retire equity. The new financing mix is 35% equity and 65% debt.

If the debt is still default-free, calculate the expected rate of return on equity? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected rate of return

%

Calculate the expected return on the package of common stock and bonds? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected rate of return

%

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I cant figure it out please help Mom’s Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $33,000; it is now five years old, and it has a current market value of $14,000. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $16,500 and an annual depreciation expense of $3,300. The old oven can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new oven whose cost is $25,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $4,000 a year over its full MACRS depreciable life. Depreciation is computed using MACRS over a 5-year life, and the cost of capital is 10 percent. Assume a 34 percent tax rate.

What will the cash flows for this project be? (Note that the $33,000 cost of the old oven is depreciated over ten years at $3,300 per year. The half-year convention is not used for the old oven. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places.)

Year

0

1

2

3

4

5

6

FCF

$

$

$

$

$

$

$

check my workreferencesebook & resources

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The net present value profile illustrates how the net present value of an investment is affected by which one of the following? Inflation rate Discount rate Real rate of return Project’s initial cost Timing of the project’s cash inflows

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I cant get this to be correct I need help Please WhackAmOle has 3 million shares of common stock outstanding, 2.0 million shares of preferred stock outstanding, and 75,000 bonds. Assume the common shares are selling for $61 per share, the preferred shares are selling for $54.00 per share, and the bonds are selling for 104 percent of par.

What would be the weights used in the calculation of WhackAmOle’s WACC? (Do not round intermediate calculations and round your answers to 2 decimal places.)

Equity weight

%

Preferred stock weight

%

Debt weight

%

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Note 1: It is best to not round intermediate and earlier answers when using data from these steps/prior answers for later questions. You could perform the problem with a spreadsheet and then intermediate steps could be referred to in later steps and all intermediate steps will not be rounded. I set the grading up so that different answers will be graded as correct using various rounding conventions, but it is still best to not round earlier steps/answers if using data for later answers. If you believe your answer is right but was marked wrong on the first try because of rounding, contact us and we will check your work/answer before your second attempt. We can also check the final attempt and change your score if there is just a rounding issue. Remember, people have different data so it will take us a little bit (we will work as fast as possible) to rework the problem and check your answer. If possible, please send us your calculations and please send your data. Note 2: To determine the value in the last question you need to know the steady cash flows of this zero growth firm (i.e. NOPAT) and divide this amount by the discount rate (WACC). We computed the present value of a steady stream of cash flows a couple times during our class discussions. Note 3: Remember, stock price times # of shares equals equity market value. Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm’s EBIT is $14.095 million, and it faces a 30% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 5%. BEA is considering increasing its debt level to a capital structure with 40% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 11%. BEA has a beta of 0.9. 1. What is BEA’s unlevered beta before restructuring? Use market value D/S (which is the same as w d/w s) when unlevering. Round your answer to two decimal places. ________ 2. What are BEA’s new beta after releveraging and cost of equity if it has 40% debt? Round your answers to two decimal places. Beta

________

Cost of equity

________ %

3. What is BEA’s WACC after releveraging? Round your answer to two decimal places. ________ % What is its total value of the firm with 40 % debt? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Also, round your answer to three decimal places. $ ________ million

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Instructions on how to would be appreciated What is the monthly payment for a 20 year mortgage for $230,000 at a 6% interest rate? (Use table 9.5 on page 271).

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MC Qu. 46 Which of the following statements is correct… Which of the following statements is correct? The MIRR corrects IRR’s faulty and unreasonable reinvestment assumption. The MIRR is a better capital budgeting tool than NPV. The MIRR may lead you to choose the wrong mutually exclusive project for a particular range of projects. All these statements are correct.

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THE “REQUIRED RATE OF RETURN”? (RE) FOR THE HAPPY COMPANY IS 8%. ITS EXPECTED ROE IS 10% AND EXPECTED (END OF COMING YEAR) EPS IS $5.00. IF THE FIRM’S PLOWBACK RATIO IS 60%, WHAT WILL BE ITS INTRINSIC PRICE AND P/E RATIO? I NEED TO KNOW HOW TO DO IT AND LABEL FORMULAS must be provide, thanks short explanation would be great !

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Why might the Internal Rate of Return and the Net Present Value method be preferred over the Cask Payback method when evaluating investment proposals by financial analysts?

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Mississippi River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $30,000 to $52,000 per year. The new machine will cost $82,500, and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period; so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm’s WACC is 16%. The old machine has been fully depreciated and has no salvage value. What is the NPV of the project? Round your answer to the nearest cent. $ Should the old riveting machine be replaced by the new one? -Select-YesNoItem 2

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Miller Brothers is considering a project that will produce cash inflows of $61,500, $72,800, $84,600, and $68,000 a year for the next four years, respectively. What is the internal rate of return if the initial cost of the project is $225,000?

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Molly is considering a project with cash inflows of $918, $867, $528, and $310 over the next four years, respectively. The relevant discount rate is 10 percent. What is the net present value of this project if it the start-up cost is $2,100?

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Required: I paid $312 in student loan interest in 2012. How will that interest impact my taxes. Assuming I am in the 15% tax bracket.

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Mr. Davidson plans to buy a new house in October 2013. The sale price of the house is $436,000. He plans to pay 20% down payments and borrow additional 80% from Bank of America with a 15-year, 3.875% fixed-rate mortgage loan. He is expected to pay an equal MONTHLY payment starting from November 2013 for 15 years. (1) Calculate the required monthly mortgage payment for Mr. Davidson. (2) Construct the 2013~2015 amortization table (26 months) for Mr. Davidson. (13 Mr. Davidson should prepare his 2013 tax filings in early 2014. Please compute the total mortgage interest payments which he can use for his 2013 tax deductions. The MS Energy Corp. is planning a new investment project which is expected to yield cash inflows of $185,000 per year in Years 1 through 2, $220,000 per year in Years 3 through 6, and $198,000 in Years 7 through 9. This investment will cost the company $790,000 today (initial outlay). We assume that the firm’s cost of capital is 6.8%. (1) Draw a time line to show the cash flows of the project. (2) Compute the project’s payback period, net present value (NPV), profitability index (PI), and internal rate of return (IRR). (3) Discuss whether the project should be taken.

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You are a mortgage banker at BB&T Bank in Miami. One customer, Peter, wants to borrow money from your bank to finance his new home. He just finds a new job and plans to buy the house at a price of $300,000. He wants to borrow a 80% loan to purchase the home. You tell Peter that a constant payment, 30 year amortization period, fully amortizing loan (FRM) is available. The interest rate for the loan is 4.5%, which is the same as the market interest rate. Moreover, you will charge a loan origination fee of 3% for the loan. (a) What is the monthly payment for the loan? (b) What is the effective interest rate, assuming the mortgage is paid off after 30 years? (c) If Peter plans to repay the loan after three years, what is the effective interest rate? (d) If Peter wants to borrow a 90% loan, the loan rate will be 5.5%. Everything else being equal (i.e., he prepays the loan after 3 years, with the 3% loan fee), would you recommend him to borrow the 90% loan? [hint: calculate incremental cost of borrowing] (e) Suppose Peter can get a loan with a below-market interest rate from the homebuilder. This fully amortizing FRM loan will have a 80% LTV, 4% interest rate, 30 years amortization period, and with no loan fees. At what price should the homebuilder sell the home to Peter in order to earn the market rate of interest (4.5%) on the loan? Assume that Peter would have the loan for the entire term of 30 years and the home would normally sell for $300,000 without any special financing. Please include all keystrokes and calculator input.

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What is the monthly payment for an $18,000, 3-year, 9 percent loan with interest calculated using the add-on method?

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Which of these statements is true? When people purchase a stock, they know exactly what their dollar and percent return are going to be. When people purchase a stock, they do not know what their return is going to be “?o either short-term or in the long run. Many people purchase stocks as they find comfort in the certainty of this safe form of investing. When people purchase a stock, they know the short-term return, but not the long-term return.

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Which statement is true? The less liquid assets a firm holds, the less likely it is that the firm will experience financial distress. The lower the liquidity ratios, the less liquidity risk a firm has. Extremely high levels of liquidity guard against liquidity crises, but at the cost of lower returns on assets. Liquid assets generate profits for the firm.

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Stock in Dragula Industries has a beta of 1.2. The market risk premium is 6 percent, and T-bills are currently yielding 4.90 percent. The company’s most recent dividend was $1.30 per share, and dividends are expected to grow at a 8.0 percent annual rate indefinitely.

If the stock sells for $36 per share, what is your best estimate of the company’s cost of equity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

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The source of funds is supplied by _____. Answer customers

investors

suppliers The WACC is tied to the _____. Answer customer base

supplier base

capital structure

none of the above Which of the following sources provides a tax benefit to the entity? Answer Debt

Preferred Stock

Common Equity One way to value a company is to use an entity’s _____. Answer customer survey

supplier base

EBIT

free cash flow An entity will reinvest the owners’ money _____. Answer into any desired project

in projects that enhance management’s position

only in projects that offer a higher return than investors could earn on their own

all of the above

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Risk Premium If the annual return on the S&P 500 Index was 12.4 percent. The annual T-bill yield during the same period was 5.7 percent. What was the market risk premium during that year? 18.1% 12.4% 5.7% 6.7%

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Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.77 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debt”?oequity ratio of 0.75, a cost of equity of 11.7 percent, and an aftertax cost of debt of 4.5 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of 2 percent to the cost of capital for such risky projects.

What is the maximum initial cost the company would be willing to pay for the project?

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Schalheim 1) Sisters Inc. has always paid out all of its earnings as dividends, hence the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC? a.

The market risk premium declines.

b.

The flotation costs associated with issuing new common stock increase.

c.

The company’s beta increases.

d.

Expected inflation increases.

e.

The flotation costs associated with issuing preferred stock increase.

____ 12. 2) LaPango Inc. estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept? a.

Project B, which is of below-average risk and has a return of 8.5%.

b.

Project C, which is of above-average risk and has a return of 11%.

c.

Project A, which is of average risk and has a return of 9%.

d.

None of the projects should be accepted.

e.

All of the projects should be accepted.

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Suppose the exchange rate between the U.S. dollar and the Swedish krona was 6 krona = $1 and the exchange rate between the dollar and the British pound was A?? L1 = $1.85. What was the exchange rate between Swedish kronas and pounds? Round your answer to two decimal places. kronas per pound

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Suppose we have the following returns for large-company stocks and Treasury bills over a six year period: Year: 1 Large Company: 3.96 U.S. Treasury Bill: 4.50 Year: 2 Large Company: 14.12 U.S. Treasury Bill: 4.88 Year: 3 Large Company 19.01 U.S. Treasury Bill: 3.80 Year: 4 Large Company: -14.67 U.S. Treasury Bill: 6.96 Year: 5 Large Company: -32.16 U.S. Treasury Bill: 4.88 Year: 6 Large Company: 37.26 U.S. Treasury Bill: 6.14 a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period. b. Calculate the standard deviation of the returns for large-company stocks and T-bills over this period c-1 Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the average risk premium over this period? c-2 Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the standard deviation of the risk premium over this period? Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the standard deviation of the risk premium over this period?

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suppose that your firm generate net income of $20 million this year and usually pay out 30% of its net earnings as dividends. The returns on equity is 10%. let DPR represent the payout ratio (30%). Find out Retained earnings of this year.

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Zocco Corporation has an inventory conversion period of 77 days, an average collection period of 29 days, and a payables deferral period of 23 days. Assume 365 days in year for your calculations. 1. What is the length of the cash conversion cycle? Round your answer to two decimal places. days 2. If Zocco’s annual sales are $2,729,545 and all sales are on credit, what is the investment in accounts receivable? Round your answer to the nearest cent. $ 3. How many times per year does Zocco turn over its inventory? Assume that cost of goods sold is 75% of sales. Round your answer to two decimal places. times

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Summer Tyme, Inc. has cash available and is considering a new three-year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed assets will be depreciated straight-line to zero over its three-year tax life. The fixed assets will have a market value of $200,000 at the end of the project. The project is estimated to generate following revenues during those three years: $2,000,000 for year one, $2,500,000 for year two, and $3,000,000 for year three. Costs are equal to 20% of the same year sales. The project net working capital is equal to 10% of the next year’s revenue. The tax-rate is 35%. What are the project’s net cash flows for years 0-3? What is the IRR on this project?

Use available Excel template and complete.

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True or False Stock classes may differ in both voting rights and dividends rights

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1. Tuttle Enterprises is considering a project that has the following cash flow and required return data. What is the project’s NPV? Note that if a project’s projected NPV is negative, it should be rejected. Required Return: 11.00% YEAR

0

1

2

3

4

CASH FLOWS

-$1,000

$350

$350

$350

$350

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This is used as a measure of the total amount of available cash flow from a project. operating cash flow free cash flow investment in operating capital sunk cash flow

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Truman Industries is considering an expansion. The necessary equipment would be purchased for $16 million, and the expansion would require an additional $3 million investment in net operating working capital. The tax rate is 40%. 1. What is the initial investment outlay? Round your answer to the nearest cent. Write out your answer completely. For example, 13 million should be entered as 13,000,000. $ 2. 3. The company spent and expensed $15,000 on research related to the project last year. Would this change your answer? Explain. 1. No, last year’s expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. 2. Yes, the cost of research is an incremental cash flow and should be included in the analysis. 3. Yes, but only the tax effect of the research expenses should be included in the analysis. 4. No, last year’s expenditure should be treated as a terminal cash flow and dealt with at the end of the project’s life. Hence, it should not be included in the initial investment outlay. 5. No, last year’s expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. 4. 5. The company plans to use a building it owns to house the project. The building could be sold for $3 million after taxes and real estate commissions. How would that fact affect your answer? 1. The potential sale of the building represents an opportunity cost of conducting the project in that building. Therefore, the possible after-tax sale price must be charged against the project as a cost. 2. The potential sale of the building represents an opportunity cost of conducting the project in that building. Therefore, the possible before-tax sale price must be charged against the project as a cost. 3. The potential sale of the building represents an externality and therefore should not be charged against the project. 4. The potential sale of the building represents a real option and therefore should be charged against the project. 5. The potential sale of the building represents a real option and therefore should not be charged against the project.

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Summit Record Company is negotiating with two banks for a $136,000 loan. Fidelity Bank requires a 14 percent compensating balance, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a 7 percent compensating balance, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 10 percent.

(a-1)

Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Round your answers to 2 decimal places. Omit the “%” sign in your response.)

Effective rate Fidelity Bank

%

Southwest Bank

%

(a-2)

Which loan should Summit accept?

Southwest Bank Fidelity Bank

(b)

Recompute the effective cost of interest, assuming that Summit ordinarily maintains $19,040 at each bank in deposits that will serve as compensating balances. (Round your answers to 2 decimal places. Omit the “%” sign in your response.)

Effective rate Fidelity Bank

%

Southwest Bank

%

(c)

Does your choice of banks change if the assumption in part b is correct?

Yes No

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Suppose you bought a 6 percent coupon bond one year ago for $929. The bond sells today for $933. The face value is $1,000. If the inflation rate last year was 4.3 percent, what was your total real rate of return on this investment?

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Sydney saved $10,000 during her first year of work after college and plans to invest it for her retirement in 40 years. How much will she have available for retirement if she can make 8% on her investment?

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Suppose you sell a fixed asset for $90,000 when its book value is $95,000. If your company’s marginal tax rate is 40%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)? $95,000 $92,000 $3,000 $5,000

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The interest rate is 4 percent per year. The time to expiration of both options below is 6 months. The price of a share of IMF Global is X. The call option at 90 sells for 5.818 while the put option sells for 9.036. You can go long or short 75 shares, and as many calls or puts as you like. Given this, graph your profits from arbitrage as X goes from 78 to 88.

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What must the rate be less than to be worth it to incur a compensating balance of $1,200 in order to get a 1.5-percent lower interest rate on a 1-year, pure discount loan of $100,000? The rate must be less than 15.58%. The rate must be greater than 15.58%. The rate must be greater than 19.27%. The rate must be less than 19.27%.

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After reading about three successful investors in The Wall Street Journal you decide that active investing will also provide you with superior trading results. What sort of behavioral tendency are you exhibiting?

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How do you think the capital structure of the typical public utility compares with the capital structure of the typical technology firm? What aspects of the two industries cause these differences in capital structure?

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Timo Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $144,980 and have an estimated useful life of 9 years. It believes it can sell the exhibit for $72,400 at that time. (Amusement parks need to rotate exhibits to keep people interested.) If the project sells the company will recoup all gains from the sale of the exhibit. It is expected to increase net annual cash flows by $27,900. The company’s borrowing rate is 8%. Its cost of capital is 10%. Its tax rate is 20%. The exhibit will be depreciated using 5 year straight line depreciation with the half year convention. Calculate the net present value of this project to the company. Select one: a. Negative $12,190 b. Negative $15,323 c. Positive $12,190 d. Positive $15,323

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Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50/50 basis. Which type of entity did they create if they have no personal liability for the firm’s debts? Answer Limited partnership

Corporation

Sole proprietorship

General partnership

Public company

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Today, you deposit $2,400 in a bank account that pays 4 percent simple interest. How much interest will you earn over the next 5 years? Answer $96.00

$101.15

$480.00

$492.16

$519.97

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30 YEAR MORTGAGE AT 10 PERCENT INTEREST RATE. LOAN AMOUNT $300000. 1. WHAT IS THE AMORTIZATION SCHEDULE FOR THE 1ST YEAR (12MOONTHS) 2. WHAT IS THE REMAMINING BALANCE OF THE 29YEARS?

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what is the price of a 2-year maturity bond with a 10% coupon rate paid annually? par value = $1000

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The comparative balance sheets for Arif Fabrics, Inc, for December 31, 2010 and 2009 appear below: 2010 2009 Assets Cash $ 94,560 $ 27,360 Accounts receivable (net) 102,430 75,430 Inventory 112,890 137,890 Prepaid expenses — 20,000 Land 25,000 — Building Document Preview:

The comparative balance sheets for Arif Fabrics, Inc, for December 31, 2010 and 2009 appear below: 2010 2009 Assets Cash $ 94,560 $ 27,360 Accounts receivable (net) 102,430 75,430 Inventory 112,890 137,890 Prepaid expenses — 20,000 Land 25,000 — Building 137,000 — Accumulated depreciation–building (15,000) — Equipment 33,000 34,000 Accumulated depreciation–equipment (14,500) (24,000) Patents 4,000 6,000 Total assets $479,380 $276,680 Liabilities and Stockholders’ Equity Accounts payable $ 10,750 $ 36,750 Notes payable (current) 10,000 — Accrued liabilities — 12,300 Mortgage payable 162,000 — Common stock, $10 par value 180,000 150,000 Additional paid-in capital 57,200 37,200 Retained earnings 59,430 40,430 Total liabilities and stockholders’ equity $479,380 $276,680 Additional information about Arif Fabrics’s operations during 2010 is as fol- lows: (a) net income, $28,000; (b) building and equipment depreciation expense amounts, $15,000 and $3,000, respectively; (c) equipment that… Attachments: Finance-probl….docx

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The following information relates to the a Division of Eco Enterprises: Interest rate on debt capital: 9% Cost of equity capital: 13% Market value of debt capital: $49 million Market value of equity capital: $79 million Income tax rate: 40% On the basis of this information, Atlas’s weighted-average cost of capital is closest to (Do not round your intermediate calculations.):

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Instructions: Provide complete methodology where necessary. The final answer carries little weight in determining your score for each question. Use the following data analysis for questions 1 and 2; , , , , and . “F” is a riskless asset. 1. Compute the level of systematic risk for A, , and state whether A is more risky than the market or less risky than the market (or the same). (5 points) Use the capital asset pricing model to determine if A is correctly priced. State whether there is an arbitrage opportunity available. Document Preview:

Instructions: Provide complete methodology where necessary. The final answer carries little weight in determining your score for each question. Use the following data analysis for questions 1 and 2; , , , , and . “F” is a riskless asset. 1. Compute the level of systematic risk for A, , and state whether A is more risky than the market or less risky than the market (or the same). (5 points) Use the capital asset pricing model to determine if A is correctly priced. State whether there is an arbitrage opportunity available. (5 points) Combine “M” and “F” so that it has the same risk as “A.” Name this portfolio “B” and show its level of return. (8 points) Form an arbitrage portfolio between “B” and “M.” Clearly mark which asset is to be bought and which one is to be sold. Also, show the return on the arbitrage portfolio. (7 points) 2. Compute Treynor’s index for “A” and the market, “M.” State which of the two securities you should choose. (8 points) Compute Jensen’s Alpha for “A” and the market, “M.” State whether “A” should be bought or sold, or if it matters. (10 points) How does Jensen’s Alpha relate to part (d) in question 2? Explain briefly. (7 points) 3. You are given the following data on three securities, A, B, and the market, M: Security Expected Return Standard Deviation Covariance with “M” A 10% 15% 225 B 10% 15% 180 M 10% 15% 225 Note: The risk-free rate is . Compute the correlation between A and the market, and B and the market. (6 points) Based on your answer to part (a), which of the two securities, A or B, is better to be combined into a portfolio with M? Explain briefly. (5 points) Compute the expected return and standard deviation for a portfolio formed between M and your choice in part (b). Then compute the weighted-average standard deviation of this portfolio and explain why the portfolio’s actual standard deviation is less than just holding any of… Attachments: Fin.doc

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Signature Scents has two divisions: the Cologne Division and the Bottle Division. The Bottle Division produces containers that can be used by the Cologne Division. The Bottle Division’s variable manufacturing cost is $2.00, shipping cost is $0.10, and the external sales price is $3.00. No shipping costs are incurred on sales to the Cologne Division, and the Cologne Division can purchase similar containers in the external market for $2.60. 1. The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be 2. Assume the Bottle Division has no excess capacity and could sell everything it produced externally. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be:

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Finance problem identification and evaluation of current liabilities Document Preview:

1) Tony Garcia opened a small motorcycle repair shop, Garcia Cycle Repair, on January 2, 2009. The shop also sells a limited number of motorcycle parts. In January 2010, Garcia realized he had never filed any tax reports for his business and therefore probably owes a considerable amount of taxes. Since he has limited experience in running a business, he has brought you all his business records, including a checkbook, canceled checks, deposit slips, suppliers’ invoices, a notice of annual property taxes of $2,310 due to the city, and a promissory note to his father-in-law for $2,500. He wants you to determine what his business owes the government and other parties. You analyze all his records and determine the following as of December 31, 2009: Unpaid Invoices: $9000 Parts Sales (excludes tax): 44270 Costs of Parts Sold: 31125 Salaries: 18200 Repair Revenues: 60300 Current Assets: 16300 Motercycle Inventory: 11750 You learn that the company has deducted $476 from the two employees’ salaries for federal income taxes owed to the government. The current social security tax is 6.2 percent on maximum earnings of $102,000 for each employee, and the current Medicare tax is 1.45 percent (no maximum earnings). The FUTA tax is 5.4 percent to the state and 0.8 percent to the federal government on the first $7,000 earned by each employee, and both employees earned more than $7,000. Garcia has not filed a sales tax report to the state (5 percent of sales). 1. Given these limited facts, determine Garcia Cycle Repair’s current liabilities as of December 31, 2009. 2. What additional information would you want from Garcia to satisfy yourself that all current liabilities have been identified? 3. Evaluate Garcia’s liquidity by calculating working capital, payable turnover, and day’s payable. Comment on the results. (assume average accounts payable were the same as year-end account payable.) The answer- the total current liabilities: $20,152.10 Please provide the answer… Attachments: Finance-probl….docx

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Assignment: NOTE: This assignment is in two parts, one is quantitative problem, the other a short paper. You need to turn in both Part I and Part II to receive full credit for this assignment.

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Part I: This part of the assignments tests your ability to calculate present value. A. Suppose your bank account will be worth $15,000.00 in one year. The interest rate (discount rate) that the bank pays is 7%. What is the present value of your bank account today? What would the present value of the account be if the discount rate is only 4%? B. Suppose you have two bank accounts, one called Account A and another Account B. Account A will be worth $6,500.00 in one year. Account B will be worth $12,600.00 in two years. Both accounts earn 6% interest. What is the present value of each of these accounts? C. Suppose you just inherited an gold mine. This gold mine is believed to have three years worth of gold deposit. Here is how much income this gold mine is projected to bring you each year for the next three years: Year 1: $49,000,000 Year 2: $61,000,000 Year 3: $85,000,000 Compute the present value of this stream of income at a discount rate of 7%. Remember, you are calculating the present value for a whole stream of income, i.e. the total value of receiving all three payments (how much you would pay right now to receive these three payments in the future). Your answer should be one number – the present value for this gold mine at a 7% discount rate but you have to show how you got to this number.

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Now compute the present value of the income stream from the gold mine at a discount rate of 5%, and at a discount rate of 3%. Compare the present values of the income stream under the three discount rates and write a short paragraph with conclusions from the computations. Part II: Read the following three sample business plans: Ice Dreams http://www.bplans.com/shaved_ice_beverage_business_plan/executive_summary_fc.php#.UxJXc_ldXYY R J Wagner & Associates Realty http://www.bplans.com/real_estate_brokerage_business_plan/executive_summary_fc.php#.UxJXiPldXYY Interstate Travel Center http://www.bplans.com/truck_stop_business_plan/executive_summary_fc.php#.UxJXo_ldXYY Which of these three projects do you think should have the highest risk from the point of view of investors (potential providers of funds) and would therefore be evaluated using the highest discount rate? Which one do you think should have the lowest? Write a paper explaining your reasoning. In your assessment of the business plans consider the possible risk of each plan. Risk is one of the main considerations when deciding whether a plan should be evaluated and discounted to present value using a high or a low discount rate. Note: you are not expected to fully analyze the numbers and financial statements in these business plans. There are only forecasts and projections. Nobody really believes them anyway. Use your intuition rather than calculations to assess risk and potential of each of these plans.

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1. Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,039,117. have a life of five years, and would produce the cash flows shown in the following table. YEAR

CASH FLOW

1

$525,103

2

-199,278

3

877,116

4

954,920

5

870,635

What is the NPV if the discount rate is 14.71 percent? 2. Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.00 million. This investment will consist of $2.70 million for land and $9.30 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.06 million, $2.12 million above book value. The farm is expected to produce revenue of $2.01 million each year, and annual cash flow from operations equals $1.87 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. 3. Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountain’s opportunity cost of capital is 16.5 percent, and the costs and values of investments made at different times in the future are as follows: YEAR

COST

VALUE OF FUTURE SAVINGS (AT TIME OF PURCHASE)

0

$5,000

$7,000



1

4,600

7,000



2

4,200

7,000



3

3,800

7,000



4

3,400

7,000



5

3,000

7,000



Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.) The NPV of each choice is: NPV 0 = $ NPV 1 = $ NPV 2 = $ NPV 3 = $ NPV 4 = $ NPV 5 = $ Suggest when should Bell Mountain buy the new accounting system? 4. Chip’s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 83 percent as high if the price is raised 8 percent. Chip’s variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm’s FCF for the year? 5. Capital Co. has a capital structure, based on current market values, that consists of 21 percent debt, 1 percent preferred stock, and 78 percent common stock. If the returns required by investors are 8 percent, 10 percent, and 16 percent for the debt, preferred stock, and common stock, respectively, what is Capital’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent.



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