Questions
Currently the level of the S&P 500 Index is 1300, and the yield on the 90-day...

Currently the level of the S&P 500 Index is 1300, and the yield on the 90-day 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?

In: Finance

ATT is considering a project. The project requires to purchase an equipment with a cost of...

ATT is considering a project. The project requires to purchase an equipment with a cost of $1.55 million. The equipment will be depreciated straight-line to a zero book value over the 9-year 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 after-tax 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...

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...

Rackin Pinion Corporation’s assets are currently worth $1,065. In one year, they will be worth either $1,000 or $1,340. The risk-free 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 risk-free 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...

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 after-tax cash flow of $261,000. If the project succeeds, the annual after-tax 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 after-tax salvage value of $530,000. If however, the project is a success, she can expand it with no additional investment and increase the after-tax cash flow to $712,000 a year for Years 2-5. 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...

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 one-way 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...

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 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...

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

  1. Using the 50-50 Rule, what is earned value for this project?
  2. Using the 0-100 Rule, what is earned value for this project?
  3. Note the discrepancy of earned value figures when using the 50-50 Rule and 0-100 Rule. Why is there a discrepancy? Which Rule should we use? Explain your rationale.
  4. Using the 50-50 Rule earned value computation, what is schedule variance for the project as reported?
  5. What is the schedule performance index (SPI)?
  6. Using the 50-50 Rule earned value computation, what is the cost variance for the project as reported?
  7. What is the cost performance index (CPI)?
  8. If the total budget for this project is 50,000, use CPI to compute estimate at complete (EAC).
  9. Using the earned value information garnered from the above table, provide your boss a brief status report on project progress to date. Also, provide projections for future status.

In: Finance

Consider historical data showing that the average annual rate of return on the S&P 500 portfolio...

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 T-bill 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 × Aσ2. (Do not round intermediate calculations. Round your answers to 4 decimal places.)

   

WBills

WIndex

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...

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...

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...

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).

In: Finance

A College's School of Liberal Arts has 3 departments Estimated information for next year is presented...

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 self-interest 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...

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 $__________

In: Finance