Currently the level of the S&P 500 Index is 1300, and the yield on the 90day treasury bill is 2.75%. The following table lists the forecasts of an economist for the S&P 500 in the coming year.
Economic Environment 
Probability of Occurance 
Expected return of the S&P 
Above Average 
30% 
22% 
Average 
45% 
8% 
Poor 
25% 
35% 
Calculate the expected return and standard deviation for the S&P 500. Construct the Security Market Line graph (from your findings) and show what the market risk premium is. Label your graph to receive full credit.
What would happen to the expected return on stocks if investors perceived an increase in the volatility of stocks? Why?
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ATT is considering a project. The project requires to purchase an equipment with a cost of $1.55 million. The equipment will be depreciated straightline to a zero book value over the 9year life of the project. At the end of the project it will be sold for a market value of $240,000. The project will not change sales but will reduce operating costs by $399,000 per year. The project also requires an initial investment of $52,000 in net working capital, which will be recouped when the project ends. The tax rate is 34 percent.
(1) What is the cash flow of the project in year 0 (or at the beginning of the project)?
(2) What is the cash flow of the project in each year from year1 to year 8?
(3) What is the cash flow of the project in year 9 (or the ending year)? [hint: there are 3 cash flow items, for example aftertax salvage value]
(4) What is the project's NPV if the required return is 11.5 percent? [hint: the answer for NPV value is one of the following choices:] A. $215,433 B. $276,945 C. $268,011 D. $225,225 E. $257,703
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Why is operating leverage so crucial to profit growth? Should companies be ready to replace variable costs such as labor with fixed costs such as technology and automation?
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Rackin Pinion Corporation’s assets are currently worth $1,065. In one year, they will be worth either $1,000 or $1,340. The riskfree interest rate is 3.9 percent. Suppose the company has an outstanding debt with a face value of $1,000.
A) What is the value of equity?
B) What is the value of debt? The interest rate on debt?
C) Would the value of equity go up or down if the riskfree interest rate were 20 percent? What does your answer illustrate?
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Jennifer K. is analyzing a project and has determined that the initial cost will be $1,519,000 and the required rate of return needs to be 14 percent. The project has a 60 percent chance of success and a 40 percent chance of failure. If the project fails, it will generate an annual aftertax cash flow of $261,000. If the project succeeds, the annual aftertax cash flow will be $684,000. She has further determined that if the project fails, she will shut it down after the first year and sell the equipment for the aftertax salvage value of $530,000. If however, the project is a success, she can expand it with no additional investment and increase the aftertax cash flow to $712,000 a year for Years 25. At the end of Year 5, the project would be terminated and have no salvage value. What is the expected net present value of this project at Time 0? $210,419.21 $176,737.63 $235,844.96 $229,842.11 $185,006.33
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Jim Ohlson is leaving tomorrow for a three day business trip to Chicago and is trying to decide the most economical way to get to and from the airport and his home. Jim could either drive (using his own car) or take the shuttle. If Jim drives, then he estimates that it will cost $0.30 per mile driven in operating costs (e.g., for oil and gas) and $7.50 per day for parking. The oneway cost of the shuttle is $25. Jim’s home is exactly 30 miles from the airport.
Required:
What are the controllable costs for Jim’s decision? Write down the magnitude of the controllable costs for both decision options.
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Why is Commerical automobile insurance so important for companies? What is Occupational Injury and Disease Insurance and why is it important to companies?
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In United State of America they say a billion is thousands million what is a billion in south africa
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Following are data reporting progress on a project. Work on all tasks contained in the table is scheduled to be complete as of the day of the report.
Budget 
Begun? 
Complete? 
Actual cost 
Earned Value 

Task A 
3,100 
Yes 
Yes 
3,100 

Task B 
4,000 
Yes 
Yes 
4,500 

Task C 
2,500 
Yes 
Yes 
2,250 

Task D 
4,000 
Yes 
No 
3,500 

Task E 
3,500 
Yes 
Yes 
4,000 

Task F 
2,500 
No 
No 
0 
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Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 32% per year. Assume these values are representative of investors' expectations for future performance and that the current Tbill rate is 4%. 
Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is U = E(r) − 0.5 × Aσ^{2}. (Do not round intermediate calculations. Round your answers to 4 decimal places.) 
W_{Bills} 
W_{Index} 
U(A = 3) 
0.0 
1.0 

0.2 
0.8 

0.4 
0.6 

0.6 
0.4 

1.8 
0.2 

0.1 
0.0 

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Create a portfolio using the two stocks and information below:
Expected Return  Standard Deviation  Weight in Portfolio  
Stock A  35.00%  11.00%  78.00% 
Stock B  26.00%  30.00%  22.00% 
       
Correlation (A,B)  0.8900     
(Do not round intermediate calculations. Record your answers in decimal form and round your answers to 4 decimal places. Ex. x.xxxx)
What is the variance of A?
What is the variance of B?
What is the Correlation (A,A)?
What is the Correlation (B,B)?
What is the Covariance (A,A)?
What is the Covariance (A,B)?
What is the Covariance (B,A)?
What is the Covariance (B,B)?
What is the expected return on the portfolio above?
What is the variance on the portfolio above?
What is the standard deviation on the portfolio above?
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non callable  callable  
Coupon  3%  4% 
call price  N.A  1100 
If interest rate expected to fall,which bond will you choose.Explain
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Comment on the nature of hedge funds and the role they play in the modern financial sector. You may illustrate with, or focus on, the story of Long Term Capital Management (LTCM).
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A College's School of Liberal Arts has 3 departments Estimated information for next year is presented below. Once table information is completed please provide the following information:
Does the allocation of equal amounts of indirect cost provide a "fair" allocation? Yes or No and explain
Which cost driver services the selfinterest of the Science Department? History Department? English Department?
What cost driver(s) would you suggest that the school use to assign a "fair" portion of overhead costs to each department? Why?
INFORMATION:
Number of Students per year: Science = 1400, History = 800, English =400
Number of classes per semester: Science  70, History = 40, English = 30
Number of professors: Science =20, History = 24, English = 10
Revenues: Science = $30,000,000, History = $17,000,000, English = $9,000,000
Direct Expenses: Science = $25,000,000 History = $14,000,000 English = $7,000,000
Each department keeps 20% of the profit it generates
Indirect costs are projected to be $5,000,000
Use a different table of the one below for each plan:
Plan 1: Allocate Equal Amounts of Indirect Costs to Each Department
Plan 2: Allocate Indirect Costs using # of Students as Cost Driver
Plan 3: Allocate Indirect Costs using # of classes/semester as cost driver
Plans 4: Allocate Indirect Costs using # of professors as cost driver
Science  History  English  
Revenues  
Direct Exp  
Indirect Exp  
Net Inc  
20% Net 
In: Finance
Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 6 percent. The company’s market capitalization is $440 million, and the required return on equity is 11 percent. Joe’s currently has debt outstanding with a market value of $33.5 million. The EBIT for Joe’s next year is projected to be $13 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 4 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 30 percent.
a. What is the maximum share price that Happy Times should be willing to pay for Joe’s? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $ __________
After examining your analysis, the CFO of Happy Times is uncomfortable using the perpetual growth rate in cash flows. Instead, she feels that the terminal value should be estimated using the EV/EBITDA multiple. The appropriate EV/EBITDA multiple is 8.
b. What is your new estimate of the maximum share price for the purchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $__________
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