Questions
Credit default

Suppose Apic Bank  lends 1 million to Ken and 5 million to Kiptoo. The probability of default in the first year for Ken is 0.2 and for Kiptoo is 0.3. The probability of joint default (both Ken and Kiptoo default) in 1 year is 0.1. The loss given default (LGD) is 40% for Ken and 60% for Kiptoo. What is the expected loss of default in 1 year for the Apic Bank?

In: Finance

Credit default

A portfolio consists of two (long) assets £100 million each. The
probability of default over the next year is 10% for the first asset,
20% for the second asset, and the joint probability of default is 3%.
Estimate the expected loss on this portfolio due to credit defaults
over the next year assuming 40% recovery rate for both assets.

In: Finance

Bond and share valuation

Discuss some characteristics and features of ordinary and preference shares? Shed some light on statement "preferences shares are referred to as hybrid security'?

In: Finance

CAPM

    Using CAPM, a stock has a beta of 1.13 and expected return of 12.1%. Risk-free asset currently earns 3.6%.

(   (a) what is the expected return on a portfolio that is equally invested in the two assets?

(    (b)   A portfolio of two assets has a beta of 0.50, what are portfolio weights?

(c)    If a portfolio of two assets has an expected return of 10%, what is beta?

(d)   If a portfolio of two assets has a beta of 2.26, what are portfolio weights?

In: Finance

Cost of capital

Based on his own analysis, Tom is recommending that the company increase its use of equity financing because, “debt costs 12.5 percent, but equity only costs 10 percent; thus equity is cheaper.” Ignoring all the other issues, what do you think about the conclusion that the cost of equity is less than the cost of debt?

In: Finance

Cost of capital

Suppose Tom O’Bedlam, president of Bedlam Products, Inc., has hired you to determine the firm’s cost of debt and cost of equity capital. The stock currently sells for $50 per share, and the dividend per share will probably be about $5. Tom argues, “It will cost us $5 per share to use the stockholders’ money this year, so the cost of equity is equal to 10 percent (5$5/$50).” What’s wrong with this conclusion?

In: Finance

CAPM

State and explain three forms of market hypothesis that are available in the real world.

In: Finance

Value of Stock and P/E Ratio

Castle-in-Sand generates a rate of return of \(20 \%\) on its investments and maintains a plowback ratio of \(0.30 .\) Its earnings this year will be \(\$ 4\) per share. Investors expect a \(12 \%\) rate of return on the stock.

Required:

(a.) Find the price and \(\mathrm{P} / \mathrm{E}\) ratio of the firm.

(b.) What happens to the P/E ratio if the plowback ratio is reduced to 0.20? Why?

(c.) Show that if plowback equals zero, the earnings-price ratio, E/P, falls to the expected rate of return on the stock.

In: Finance

Net Present Value

NBA stars Kevin Durant and Chris Paul own a company that faces a 40% tax rate and uses a 14% discount rate. They just invested $677,000 in equipment for the banking app “Goalsetter” that would be depreciated on a straight-line basis to zero over the 6-year life of the project. The equipment will be salvaged for $182,000 at the end of the project. Kevin Durant and Chris Paul know that the project's operating cash flow will be $165,300 per year. What is the NPV of this project if it requires $52,000 initially for net working capital, which will be recovered at the end of the project?

a. −$15,126

b. −$12,763

c. −$11,486

d. –$13,614

e. −$16,290

In: Finance

Price of stock

Zero growth: Ron Santana is interested in buying the stock of First National Bank. While the bank's management expects no growth in the near future, Ron is attracted by the dividend income. Last year the bank paid a dividend of $5.65. If Ron requires a return of 14 percent on such stocks, what is the maximum price he should be willing to pay for a share of the bank's stock?

In: Finance

Graphically describes the flow of data within an organization

Graphically describes the flow of data within an organization

a.

Data flow diagram

b.

Document flowchart

c.

System flowchart

d.

Program flowchart

In: Finance

Calculate the amount of money that will be in each of the following accounts at the end of the given deposit period:

(Compound interest with non-annual periods) Calculate the amount of money that will be in each of the following accounts at the end of the given deposit period:

Account Holder

Amount

Deposited

Annual Interest Rate

Compounding Periods per Year (M)

Compounding Periods (Years)

Theodore Logan TIT

$ 1,000

10%

1

10

Vernell Coles

95,000

12

12

1

Tina Elliott

8,000

12

6

2

Wayne Robinson

120,000

8

4

2

Eunice Chung

30,000

10

2

4

Kelly Cravens

15,000

12

3

3

In: Finance

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia.

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $893. Selected data for the company’s operations last year follow:

Units in beginning inventory      0

Units produced      14,000

Units sold      12,000

Units in ending inventory      2,000

Variable costs per unit:        

Direct materials      $ 150

Direct labor      $ 510

Variable manufacturing overhead      $ 47

Variable selling and administrative      $ 21

Fixed costs:        

Fixed manufacturing overhead      $ 640,000

Fixed selling and administrative      $ 770,000

Required:

1.  Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.      

2.  Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

In: Finance

DuPont system of analysis Use the following ratio information for Johnson International and the industry averages for Johnson's line of business to

DuPont system of analysis

Use the following ratio information for Johnson International and the industry averages for Johnson's line of business to:

a. Construct the DuPont system of analysis for both Johnson and the industry.

b. Evaluate Johnson (and the industry) over the 3 -year period.

c. Indicate in which areas Johnson requires further analysis. Why?

$$ \begin{array}{llll} \text { Johnson } & 2013 & 2014 & 2015 \\ \hline \text { Financial leverage multiplier } & 1.75 & 1.75 & 1.85 \\ \text { Net profit margin } & 0.059 & 0.058 & 0.049 \\ \text { Total asset turnover } & 2.11 & 2.18 & 2.34 \\ \hline \text { Industry averages } & & & \\ \hline \text { Financial leverage multiplier } & 1.67 & 1.69 & 1.64 \\ \text { Net profit margin } & 0.054 & 0.047 & 0.041 \\ \text { Total asset turnover } & 2.05 & 2.13 & 2.15 \end{array} $$

In: Finance

Which item is included in the NIMS Management Characteristic of Accountability?

Which item is included in the NIMS Management Characteristic of Accountability?

  • A. Check-In/Check-Out of incident personnel
  • B. Maintain an accurate inventory of resources
  • C. Establish specific, measurable objectives
  • D. Conduct briefings as part of transfer of command

In: Finance