A new father plans on saving for his daughter’s college education. He will donate $775.00 on her first birthday. After that, he will increase his donation by 3.00% each year and will make his last contribution on her 18th birthday. If he can earn 9.00% each year in his investment account, how much will his daughter’s college fund be worth on her 18th birthday?

Suppose you need $1 million dollars to start your Dream Business. Describe two (2) ways you would generate the funds needed to start such a business. Next, discuss any risks or benefits you should be aware of when gathering these funds. Provide examples to support your response.

Adamson Corporation is considering four average-risk projects with the following costs and rates of return:

The company estimates that it can issue debt at a rate of r_d= 10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $6 per year at $58 per share. Also, its common stock currently sells for $32 per share; the next expected dividend, D₁, is $3.25; and the dividend is expected to grow at a constant rate of 6% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

1. What is the cost of each of the capital components? Round your answers to two decimal places. Do not round your intermediate calculations.

   Cost of debt %

   Cost of preferred stock %

   Cost of retained earnings %

2. What is Adamson's WACC? Round your answer to two decimal places. Do not round your intermediate calculations.

   %

3. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept?

   Project 1

Assume a mutual fund owns 2,500 shares of Goldman Sachs, trading at $66.25, 1,500 shares of Amazon, currently trading at $61.75, and 2,000 shares of Apple, trading at $18.50 on day 1. The mutual fund has no liabilities and 15,000 shares outstanding held by investors.

a. What is the NAV of the fund?

b. Calculate the change in the NAV of the fund if the next day Goldman Sachs’ shares increase to $69, Amazon’s shares increase to $65, and Pfizer’s shares decrease to $15.50.

c. Assume that on Day 1, 750 additional investors buy one share each of the mutual fund at the NAV obtained in part a) equal to $Y. This means that the fund manager has 750 * Y additional funds to invest. The fund manager decides to use these additional funds to buy additional shares in Amazon. Calculate next day’s NAV given the same rise in share values as calculated in part b.

SHOW WORK FOR CALCULATIONS

1. Complete questions: Define each of the following terms:

a. Operating plan; financial plan

b. Spontaneous liabilities; profit margin; payout ratio

c. Additional funds needed (AFN); AFN equation; capital intensity ratio; self-supporting growth rate

d. Forecasted financial statement approach using percentage of sales e. Excess capacity; lumpy assets; economies of scale

f. Full capacity sales; target fixed assets to sales ratio; required level of fixed assets

2. Complete problem: Premium for Financial Risk XYZ, Inc. has an unlevered beta of 1.0. They are financed with 50% debt and has a levered beta of 1.6. If the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that XYZ, Inc. shareholders require to be compensated for financial risk? Show your work.

We are evaluating a project that costs $839014, has an eight-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 63074 units per year. Price per unit is $37, variable cost per unit is $18, and fixed costs are $415935 per year. The tax rate is 35%, and we require a return of 21% on this project. What is the NPV of this base-case?

1a. Steven has a job with monthly take-home pay of $3,500. Using the suggested maximum debt safety ratio, what maximum debt burden per month can he assume? (Show all work.)

1b. Jack and Jill have a combined take-home income of $4,500. Their total monthly payments on consumer debt are $875. What is their debt safety ratio? Are they exhibiting any sign of approaching credit problems?

1c. 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?

1d. The APR on this account is 18%. Assuming the $926 does not include any interest charge, how much of your minimum payment will be used for interest?

The following is extracted information from financial statements of Kabuku Ltd for the years 2005 to 2009

Balance Sheet as at year end 31^st Dec

You are required to carry out the following analyses;

Common size balance sheet for the five years. and interpret.

Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $50,000 2 35,000 3 30,000 4 20,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60,000 in plant and equipment. a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. (Do not round intermediate calculations.) c. If the opportunity cost of capital is 10%, what is the project's NPV? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What is project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Assume that the expected rate of return on the market portfolio is 15% and the risk-free rate is 5%. The standard deviation of the market is 20% and assume that the market portfolio is efficient.

a) What is the equation for the Capital Market Line?

b) if an expected return of 40% is desired, what is the standard deviation of this position?
If you have a 1000$ to invest, how should you allocate it to achieve the above position?

c) If you invest 300$ in the risk-free asset and 700$ in the market portfolio, how much money can you expect to have at the end of the year?

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.3 million. The equipment will be depreciated straight line over 6 years to a value of zero, but in fact it can be sold after 6 years for $694,000. The firm believes that working capital at each date must be maintained at a level of 10% of next year’s forecast sales. The firm estimates production costs equal to $2.00 per trap and believes that the traps can be sold for $8 each. Sales forecasts are given in the following table. The project will come to an end in 6 years, when the trap becomes technologically obsolete. The firm’s tax bracket is 35%, and the required rate of return on the project is 10%. Use the MACRS depreciation schedule. YEAR 1 DEP : 33.33%, YEAR 2: 44.45% YEAR 3: 14.81% YEAR 4: 7.41% Year: 0 1 2 3 4 5 6 Thereafter Sales (millions of traps) 0 0.4 0.5 0.6 0.6 0.8 0.5 0

a. What is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places.)

b. By how much would NPV increase if the firm depreciated its investment using the 5-year MACRS schedule? (Do not round intermediate calculations. Enter your answer in whole dollars not in millions.)

Negotiate 2 bank credits:

one for intermediate trade with the USA (Import of iPhones 7) and

second – for the construction of the iPhone plant in Kyiv.

Suggest your terms and conditions: (sum, currency, duration, interest rate, procedure of drawing and reimbursement, collateral – if any etc.)

Susan Summers wants to buy a house for $320,000 in 5 years. She wants to put

20% down and apply for 30-year fixed mortgage to finance the rest. Mortgage

interest rate is 4%, annual property tax is 0. 9% of house value and homeowners

insurance is $100 per month. Assume expected rate of return on her savings is

2%. Expected inflation rate is 3%.

1. Calculate monthly mortgage payment.

2. Calculate housing expenses (front-end) ratio.

3. Calculate total debt-to-income (back-end) ratio.

4. Based on your calculation, can she afford the $320,000 house?

5. Calculate how much she needs to set aside every month to save enough

for down payment in 5 years.

6. Calculate how long it takes to save enough for down payments if she

saves $200 each month?

Using the table and information below to calculate the following: The value of the stock is currently $87, and expiration is Jan 16, Feb 16, and March 16. Briefly discuss your results.

1. Complete the profit/loss tables for 80, 85, 90, 95 at the end of the period.
2. Calculate the Long Straddle (buy long call and long put) using March 90 options

3. Calculate the Short Strip using the 95 March options.

4. Calculate the net value of a protective put position at an expiration stock price of 50. Use a strike price of 80.
5. Calculate the net value of a covered call position at an expiration stock price of 100. Use a strike price of 95.

4.Amortization with Equal Payments [LO3] Prepare an amortization schedule for a five-year loan of $71,500. The interest rate is 7 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year? How much total interest is paid over the life of the loan?

5.Amortization with Equal Principal Payments [LO3] Rework Problem 4 assuming that the loan agreement calls for a principal reduction of $14,300 every year instead of equal annual payments.

***PLEASE TYPE THE ANSWERS***