Instruction:   The table consists of information about 2 competing investments.                  
                      
Economy    Probability   Project A           Project B  
       Profit     Expected Value       Profit     Expected Value
Weak   15.0%   $10.00           -$25.00  
OK   55.0%   $30.00           $0.00  
Good    20.0%   $50.00           $100.00  
Excellent   10.0%   $70.00           $200.00  
   100%                  
                      
Part 1 - calculate the expected value for each project.           3 points per answer          
                      
part 2 - which do you select?           Why?          
                      
                      

________ 16.   According to the Rule of 72, it will take _____ years to double your money at a 6.4 percent rate of interest.

                         a. 11.25 years b. 11.33 years                         c. 11.67 years                   d. 12.00 years

________ 17.   Your current annual salary is $97,400. Your first job paid $22,500. How many years have you been

                         employed if your average annual salary increase has been 4.2 percent?

                         a. 26.87 years b. 31.15 years                         c. 32.01 years                   d. 35.62 years

________ 18.   Which one of the following statements is correct, all else held constant?

                         a.    The future value will decrease if the interest rate is increased.

                         b. The present value is directly related to the interest rate.

                         c. An increase in the interest rate will increase the time period.

                         d. The future value and the present value are directly related.

________ 19.   Ten years ago, Zenia had a population of 4.6 million residents. Today, there are 6.3 million residents of

                         Zenia. What is the annual rate of population growth?

                         a. 2.68 percent               b. 2.94 percent                        c. 3.19 percent                  d. 4.27 percent

________ 20.   A farmer currently produces 45,000 bushels of corn a year. He can increase his harvest by an average rate of

                         3 percent annually. How long will it be until the farmer can produce 50,000 bushels of corn each year?

                         a. 3.07 years b. 3.56 years                           c. 3.80 years                     d. 4.14 years

A firm that purchases electricity from the local utility is considering installing a steam generator. A large generator costs $300,000 whereas a small generator costs $240,000. The cost of operating the generator would be $100,000 per year for the large and $135,000 for the small. Either generator will last for five years. The cost of capital is 9%. For each generator option, assume immediate installation, with purchase and operating costs in the current year and operating costs continuing for the next four years. Assume payments under both options at the start of each year (i.e., immediate, one year from now,..., four years from now). What is the net present value of the more attractive generator? Please round your answer to the nearest dollar. Report the NPV of cost as a negative number.

You and your spouse have decided that now is a good time to "buy vs. own." You have found a dream house that costs 278970 and you can get an loan-to-value of 89%. Your broker has lined up a traditional, fully amortizing loan at an interest rate of 6 annual, compounded 12/year for a 30 year term. What will your mortgage payments be if you buy the house?

You have taken on a new job that will be extremely intense and not leave much time for vacations. Your significant other is willing to put up with things but wants you to promise to take them on a dream vacation at the end of the 5th year. Since you haven't been able to deliver on these promises in the past, they want you to set aside enough money to cover that cruise which will cost $13835. If you can earn 5% annual, compounded monthly, how much will you have to set aside?

You are putting together a partnership and want to bring in a partner who is very focused on building up his wealth. You have run your cash flows and think you can promise to give him a constant annual dividend of 23109. Assume he can earn 6% compounded 1 times per year on his money. He wants to know what the investment will accumulate to if you run the partnership for 8 years. What will he have accumulated in his account by then?

You are worried about the future of social security and want to start saving. You think you can set aside $1606 per month. You have been offered an investment product on which you can earn 3% annually compounded 12 times per year. How much will this accumulate to if you plan to retire at the end of the 10th year?

There is an investment that returned 7.6% while having a 7.4 PE ratio and a risk evaluation of 1. Estimate the return on this investment assuming its 7.4 PE ratio and Risk evaluation of 1. What is the residual compared to the actual 7.6 return? |PE Ratio Risk Return |7.4 1.0 7.6 11.1 1.3 13.0 8.7 1.1 8.9 11.2 1.2 10.9 11.6 1.7 12.1 12.2 1.3 12.8 12.5 1.2 11.3 12.5 1.3 14.1 13.0 1.6 14.8 13.4 1.4 16.7

PLEASE SHOW STEPS AND BASIC FORMULAS USED FOR EQUATIONS AND CALCULATIONS.PREVIOUS CHEGG ANSWER CANNOT BE COMPREHENDED.

1. A 25-year, 5% coupon bond, pays interest semi-annually, and is priced to yield 5%.

a. What is its approximate modified duration for 100bps change in yield?

b. What is its approximate convexity for 100bps change in yield?

c. Using its approximate modified duration alone, how much (in % terms) do you expect the price of this bond to change if interest rates increase by 200bps?

d. Using its modified duration and convexity, how much (in % terms) do you expect the price of this bond to change if interest rates increase by 200bps?

e. Compare the actual expected change in the value of the bond if yields across the yield curve increased by 200bps for this issuer vs. the answer obtained in part d above.

1. What do you think would happen to interest rates in the US if the US government deficits increase? What if foreign investors reduce their purchases of 10-year treasuries? Explain briefly.

2. What is the difference between tailoring and tapering?

Blue Eagle Aviation stock has an expected annual return of 9.59 percent. The stock is currently priced at 68.72 dollars per share and has an expected dividend yield of 4.16 percent. What is the price of the stock expected to be in 1 year?

QUESTION THREE

Discuss the following capital structure theories and their implication to the value of the firm.

1. The traditional Theory                                                                                   
2. The Net Income Approach                                                                           
3. The Net Operating Income Approach                                                          
4. Modigliani and Miller (MM) Approach                                                       

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 5%, and the market’s average return was 13%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM − rf) 2% + 0.8(rM − rf) R-square 0.605 0.451 Residual standard deviation, σ(e) 10.8% 19.6% Standard deviation of excess returns 22.1% 25.9% a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.) b. Which stock is the best choice under the following circumstances?

Target is the publicly traded company I chose. Review its most recent Annual Report.

Use the Income Statement and Balance Sheet to determine the changes in:

assets, liabilities, and equity

total revenue and net income

Briefly describe the change from the current and prior years in each of these key areas and determine if the changes would be positive or negative from an investor / stockholder’s view.

John Doe has just been offered a home loan towards purchase of house that is being sold for ​$250,000.He will be required to make a 5​% down​ payment, as well as mortgage processing fees and closing costs of ​$4,000. The loan has to be paid off in monthly payments over a​ 30-year period at a fixed interest rate of 4​% per year compounded monthly. He will also be required to pay an additional $200 per month as mortgage insurance. Using​ Excel, answer the following​ questions:(PLEASE SHOW FORMULA)

The monthly mortgage payment is _______

The total monthly payment is _________

The nominal APR is________

 The effective APR is_________

Over the​ 30-year period, the total amount of interest paid on the loan is__________

The interest amount in the month 69 payment is __________

 The principal amount in the month 69 payment is _________

The balance on the loan immediately after making the payment at the end of  month 69   is___________

A portfolio has 65 shares of Stock A that sell for $40 per share and 130 shares of Stock B that sell for $31 per share. What is the portfolio weight of Stock A? What is the portfolio weight of Stock B?

Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has invested in a particular type of asset (or group of assets) to the amount of revenues the asset is generating. Examples of asset management ratios include the average collection period (also called the days sales outstanding ratio), the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio.

Consider the following case:

Monroe Manufacturing has a quick ratio of 2.00x, $34,875 in cash, $19,375 in accounts receivable, some inventory, total current assets of $77,500, and total current liabilities of $27,125. The company reported annual sales of $800,000 in the most recent annual report.

Over the past year, how often did Monroe Manufacturing sell and replace its inventory?

2.86x

37.85x

34.41x

8.01x

The inventory turnover ratio across companies in the manufacturing industry is 37.851x. Based on this information, which of the following statements is true for Monroe Manufacturing?

Monroe Manufacturing is holding less inventory per dollar of sales compared with the industry average.

Monroe Manufacturing is holding more inventory per dollar of sales compared with the industry average.

You are analyzing two companies that manufacture electronic toys—Like Games Inc. and Our Play Inc. Like Games was launched eight years ago, whereas Our Play is a relatively new company that has been in operation for only the past two years. However, both companies have an equal market share with sales of $800,000 each. You’ve collected company data to compare Like Games and Our Play. Last year, the average sales for all industry competitors was $2,040,000. As an analyst, you want to make comments on the expected performance of these two companies in the coming year. You’ve collected data from the companies’ financial statements. This information is listed as follows: (Note: Assume there are 365 days in a year.)

Data Collected (in dollars)

Using this information, complete the following statements to include in your analysis.

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Integrativelong dashInvestment decision Holliday Manufacturing is considering the replacement of an existing machine. The new machine costs $ 1.20 million and requires installation costs of $ 150 comma 000. The existing machine can be sold currently for $ 185 comma 000 before taxes. It is 2 years old, cost $ 800 comma 000 new, and has a $ 384 comma 000 book value and a remaining useful life of 5 years. It was being depreciated under MACRS using a 5-year recovery period and therefore has the final 4 years of depreciation remaining. If it is held for 5 more years, the machine's market value at the end of year 5 will be $ 0. Over its 5-year life, the new machine should reduce operating costs by $ 350 comma 000 per year. The new machine will be depreciated under MACRS using a 5-year recovery period. The new machine can be sold for $ 200 comma 000 net of removal and cleanup costs at the end of 5 years. An increased investment in net working capital of $ 25 comma 000 will be needed to support operations if the new machine is acquired. Assume that the firm has adequate operating income against which to deduct any loss experienced on the sale of the existing machine. The firm has a 9.0 % cost of capital and is subject to a 40 % tax rate. a. Develop the relevant cash flows needed to analyze the proposed replacement. b. Determine the net present value (NPV) of the proposal. c. Determine the internal rate of return (IRR) of the proposal. d. Make a recommendation to accept or reject the replacement proposal, and justify your answer. e. What is the highest cost of capital that the firm could have and still accept the proposal?