What_advantages _do_ finance_ companies_ have over commercial banks in offering services to small business customers? What are the major subcategories of business loans? Which category is largest?

What is the internal rate of return (to the nearest one-half percent) on an investment costing $500,000 and having expected future after-tax net cash flows of:

Use the trial-and-error method and write out all your work. Hint: Start at 11%.

Soenen Inc. had the following data for last year (in millions). The new CFO believes that the company could improve its working capital management sufficiently to bring its net working capital and cash conversion cycle up to the benchmark companies' level without affecting either sales or the costs of goods sold. Soenen finances its net working capital with a bank loan at an 8% annual interest rate, and it uses a 365-day year. If these changes had been made, by how much would the firm's pre-tax income have increased?

1) Quantitative Problem 1: Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1 – T)] will be $430 million and its 2020 depreciation expense will be $60 million. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 6.5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.9%; the market value of the company's debt is $2.8 billion; and the company has 190 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019)? Do not round intermediate calculations. Round your answer to the nearest cent.
Q. $ ? per share

2) Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.

The weighted average cost of capital is 12%, and the FCFs are expected to continue growing at a 3% rate after Year 5. The firm has $26 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 20 million shares outstanding. Also, the firm has zero non-operating assets. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations.
Q. $ ? per share

3) According to the valuation models developed in this chapter, the value that an investor assigns to a share of stock is dependent on the length of time the investor plans to hold the stock.

Q. The statement above is -Select-true/false

4) Quantitative Problem 3: Assume today is December 31, 2019. Imagine Works Inc. just paid a dividend of $1.20 per share at the end of 2019. The dividend is expected to grow at 18% per year for 3 years, after which time it is expected to grow at a constant rate of 6% annually. The company's cost of equity (r_s) is 9%. Using the dividend growth model (allowing for nonconstant growth), what should be the price of the company's stock today (December 31, 2019)? Do not round intermediate calculations. Round your answer to the nearest cent.

Q. $ ? per share

You are evaluating two different milling machines to replace your current aging machine. Machine A costs $256654, has a three-year life, and has pretax operating costs of $67338 per year. Machine B costs $432641, has a five-year life, and has pretax operating costs of $30018 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $44596. Your tax rate is 34 % and your discount rate is 10 %. What is the EAC for Machine A? (Round answer to 2 decimal places. Do not round intermediate calculations)

Consider the following premerger information about Firm A and Firm B:

                                       Firm A       Firm B

Total Earnings               $3,150         $1,000

Shares Outstanding       1,500            300

Price per share               $43               $47

Assume that Firm A acquires Firm B via exchange of stock price of $49 for each share of b's stock. Both A and B have no debt outstanding.

a) What will the earnings per share (EPS) of Firm A be after the merger?

b) What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price-earnings ratio does not change)?

c) What will the price earnings ratio of the post merger firm be if the market correctly analyzes the transaction?

d) If there are no synergy gains, what will the price of A be after the merger? What will the price-earnings ratio be? What does your answer for the share price tell you about the amount A bid for B? Was it too high? Too low? Explain?

If you pay $4 for a call option on JPM stock with an at the money strike price of $100 and at the same time you write a call option with a strike price of $110 for which you receive $1; how much money do you make or lose on the transaction if the stock goes to either $120; $105; or $90?

Steven can choose between two CDs offered by two different banks. One pays 5 percent simple interest and the other pays 5 percent compound interest. Which CD should he choose and why? (15 points)

II. Joan has been talking with her banker about interest rates. Her banker told her that the bank offers higher interest rates if she puts the money in a CD (Certificate of Deposit) than in a regular savings account. Why is the bank able to offer more interest on a CD than a savings account? (15 points)

III. The following 15 questions are worth 3 points each for 45 total points.

1. The chance that an investment will decrease in value is a _________.
a) trade b) risk c) choice d) certainty

2. The person who handles the transfer of stocks and bonds between buyer and seller is a ______.
a) stockbroker b) banker c) financier d) government employee

3. Joe bought 300 shares of stock last year at $3 per share and sold them today at $6 a share. His capital gain is _______.
a) $500. B) $300. C) $900. D) $600.

4. Capital gains are
a) proceeds from the sale of stock b) profit from the sale of stock c)proceeds from real estate sales d) profit minus sales fee for stocks

5. Sector funds are
a) aggressive funds b) international funds c) specific types of businesses funds d) bond funds

6. The income you earn on an investment is a ______.
a) growth b) return c) value d) risk

7. The sales fee you pay when you invest in a mutual fund is called a (n)________.
a) return b) cosign c) trust d)load

8. A company that specializes in helping people buy and sell stocks and bonds is a _________.
a) brokerage firm b) stock exchange c) inside trader d) Securities and Exchange Commission

9. A tax deferred retirement savings plan offered to employees by any employer is a (n) _____.
a) 401(k) b) 403(b) c) IRA d) exchange

10. A non-voting share that pays a fixed dividend is called _________.
a) common stock b) preferred stock c) mutual stock d) transferable stock

11. Insider trading is trading stock based on information available on the internet.
a) True or b) False

12. A savings plan with deferred tax benefits set up by an individual not the employer is called ______.
a) 403(b) b) IRA c) 401(k) d) REIT

13. You rent a living room chair from a Rent-To-Own company for $9.95 per week. The company says after 40 weeks you will own the chair. How much will this chair cost you?
a) $300. B) $350. C) $398. D) $412

14. The measure of credit worthiness is a ________.
a) credit listing b) credit debt c) ability to repay a loan d) credit charge

15. A savings plan with deferred tax benefits set up for teachers, ministers, hospital workers and some other public employees is a (an) _______plan.
a) 403b b) IRA c) 401K d) REIT

 
IV. Answer these short essay questions:

1. You buy 200 shares of stock at $5.00 per share. You receive one dividend of 20 cents per share. You sell the stock two years later for $6.00 a share. Fee for selling the stock online is $15.

What is the total profit you made on the entire transaction? Is this a long-term or short-term capital gain? (10 points)

2. You have a credit card that charges 18% per year interest or 1.5% per month. Interest is charged at the beginning of the month. You buy a TV for $1500 on the credit card, but at the end of the month you only pay $100. You continue to pay $100 the next month. You pay the entire balance in the third month.

How much did you pay the third month? (10 points)

How much total interest did you pay over the three months? (5 points)

Foreign market entry mode – International joint venture vs. Exporting ABYZ Company is a successful Australian business. Currently, it manufactures within Australia and exports its products to overseas markets. From the perspective of ABYZ Company, discuss why the use of Exporting might be a more appropriate international foreign market entry mode than entering through a Foreign Direct Investment (FDI) Greenfields approach. Discuss the advantages and disadvantages of both for the company. Recommended length is approximately 250 words. (dont paste anothers need a new one)

Sauer Food Company has decided to buy a new computer system with an expected life of three years. The cost is $430,000. The company can borrow $430,000 for three years at 13 percent annual interest or for one year at 11 percent annual interest. Assume interest is paid in full at the end of each year.  

a. How much would Sauer Food Company save in interest over the three-year life of the computer system if the one-year loan is utilized and the loan is rolled over (reborrowed) each year at the same 11 percent rate? Compare this to the 13 percent three-year loan.
  

b. What if interest rates on the 11 percent loan go up to 16 percent in year 2 and 19 percent in year 3? What would be the total interest cost compared to the 13 percent, three-year loan?
  

Calculation of individual costs and WACC - Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital The weighted average cost is to be measured by using the following weights: 30% long term debt, 20% preferred stock, and 50% common stock equity.

Debt - the firm can sell for $1010 a 15-year, $1,000 par value bond paying annual interest at a 6.00% coupon rate. A flotation cost of 3.5% of the par value is required.

Preferred stock - 9.50% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $6 per share must be paid to the underwriters.

Common stock - The firm's common stock is currently selling for $59.43 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.70 ten years ago to the $4.40 dividend payment D₀, that the company just recently made. If the company wants to issue new new common stock, it will sell them $1.50 below the current market price to attract investors, and the company will pay $3.50 per share in flotation costs.

a. calculate the after-tax cost of debt.

b. calculate the cost of preferred stock.

c. calculate the cost of common stock (both retained earnings and new common stock).

d. calculate the WACC for Dillon Labs.

The one rate that truly represents the interest earned in a year is the annual effective yield. (or effective annual interest rate).

True

False

Market interest rates are supposed to reflect any anticipated changes in earning power as well as purchasing power in the economy.

True

False

When you pay cash for a car, you lose the opportunity to earn interest on the money you spend.

True

False

An asset manager follows an active international asset allocation strategy. The average execution cost for a buy or a sell order is forecasted at 0.6%. On average, the manager turns over the portfolio once a year. Various administrative costs include a custodial cost amount of 0.5% per year of assets under management. The annual management fee is 1% of assets under management. The annual expected return before costs is 14% compared to an expected return of 10% on a passive global benchmark (some global index).
1. What is the annual expected return net of execution costs?
2. What is the net annual expected return for the client?
3. Should the client expect the portfolio to outperform the global index used as a benchmark?

The cost of capital represents the weighted average cost of all sources of long-term financing to the firm, is normally the discount rate to use in analyzing an investment, is based on the valuation techniques from the previous chapter and is applied to bonds, preferred stock and common stock.

What does this mean?

on May 2nd you buy 30 contracts of September reliance futures at rupees 420/share assume that each contact covers 50 shares the initial margin is rupees 900 /contract and maintenance margin rupees 675/contract
daily settlement prices are as follows
may 2nd -409
may 3rd-433
may4th-418
May 5th-423
whenever you allow to withdraw From margin account you are withdrawing half the maximum amount each day describe what changes take place in the margin account at the end of each day?