The information below provides details of an off-exchange tailor-made loan obtained by Royal Oceania Cruises to fund their operations.

• Today is June 30 2019, which is the initiation date of the loan.

• The Commonwealth Bank is loaning money to Royal Oceania Cruises.

• The amount borrowed is $50 million.

• The maturity date of the loan is three years.

• A minimum interest payment of $1 million is due in each financial year. The financial

  year ends on 30 June each year.

• The nominal interest rate associated with this loan is the Reserve Bank of Australia

  cash rate (as at June 30 2019) plus a margin of 3.75%. This interest rate is compounded monthly and is fixed from the initiation date.

  Assume the following payments are made by Royal Oceania Cruises during the term of the loan:

• Monthly repayments of $2 million at the end of each month beginning on January 31 2020 until April 30 2021 (inclusive).

• May 31 2021: a single payment of $2 million.

• April 30 2022: a single payment of $10 million.

  Given such payments, your job is to determine the outstanding value of the loan on the maturity date.

Assume that a radiologist group practice has the following cost structure:

a. What is the group’s breakeven point in volume?

b. Complete the following table. (Hint: total costs= fixed costs + (variable cost per procedure x procedures)

c. Sketch out a breakeven graph depicting the BE point. (Hint: use Excel to produce the graph. When done, copy/paste the graph on the space provided below).

For the most recent year, Camargo, Inc., had sales of $570,000, cost of goods sold of $249,870, depreciation expense of $64,900, and additions to retained earnings of $77,300. The firm currently has 24,500 shares of common stock outstanding and the previous year’s dividends per share were $1.52. Assuming a 24 percent income tax rate, what was the times interest earned ratio?

Suppose you and your husband have decided that when you retire in 15 years you want to take a trip around the world for a year. You realize that you need to begin saving now for this trip of a lifetime. You want to be able to deposit annually (end of year payments) a fixed amount in an interest bearing account. It is estimated that monthly after that you will need to withdraw $5000 monthly for spending money. You will make the down payment at year 15 and the monthly payments will begin the first month after year 15 and will go for 12 months. How much must you deposit annually to be able to pay for these expenses. Assume 6% interest annual rate with monthly compounding.

Song earns $100,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $20,000 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Song's average tax rate increases from 20 percent to 25 percent.  

a. What will happen to the government’s tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $75,000 in taxable income?

• Government's tax revenues would decrease by $1,250

• Government's tax revenues would increase by $1,250

• Government's tax revenues would decrease by $1,500

• Government's tax revenues would increase by $1,500

• Government's tax revenues would remain unchanged

b. What is the term that describes this type of reaction to a tax rate increase?

• Price effect

• Endowment effect

• Substitution effect

• Budget constraint

• Income effect

c. What types of taxpayers are likely to respond in this manner?

• Taxpayers with less disposable income

• Taxpayers with more disposable income

Rebecca is interested in purchasing a European call on a hot new​ stock, Up, Inc. The call has a strike price of $ 99.00 and expires in 94 days. The current price of Up stock is $ 116.59​, and the stock has a standard deviation of 39 % per year. The​ risk-free interest rate is 6.39 % per year. Up stock pays no dividends. Use a​ 365-day year.

a. Using the​ Black-Scholes formula, compute the price of the call. b. Use​ put-call parity to compute the price of the put with the same strike and expiration date. ​(Note​: Make sure to round all intermediate calculations to at least five decimal places.​) ​

Roslin Robotics stock has a volatility of 28 % and a current stock price of $ 64 per share. Roslin pays no dividends. The​ risk-free interest is 5 %.

Determine the​ Black-Scholes value of a​ one-year, at-the-money call option on Roslin stock.

Suppose that Ally Financial Inc. issued a bond with 10 years until​ maturity, a face value of $ 1,000​, and a coupon rate of 6 % ​(annual payments). The yield to maturity on this bond when it was issued was 5 %.

a. What was the price of this bond when it was​ issued? b. Assuming the yield to maturity remains​ constant, what is the price of the bond immediately before it makes its first coupon​ payment? c. Assuming the yield to maturity remains​ constant, what is the price of the bond immediately after it makes its first coupon​ payment?

1. Firm X is being acquired by Firm Y for $35,000 worth of Firm Y stock (valued at the pre-merger current price of Y). Both firms are “all-equity” financed. The incremental value created by the merger is $2,500. Firm X has 2,000 shares of stock outstanding at $16 per share. Firm Y has 1,200 shares of stock outstanding at a price of $40 per share. What is the actual cost of the acquisition to Firm Y using company stock? Why is the actual cost less than $35,000?

Discount Bonds

Discount bonds such as Treasury bills have no stated interest rate. They are sold at a discount from face value, F. The yield or nominal interest rate is the percentage increase above the purchase price, P. The yield, i, is found as

                i = ((F – P)/P) * 100

You multiply by 100 to convert the decimal to a percentage.

An example:

Assume F = 1000 and P = 950 for a 1-year discount bond. Its yield is

         ((1000-950)/950)*100

         = (50/950)* 100

         = (0.0526) * 100

         = 5.26%

1. For a 1-year discount bond, if F =1000 and P = 950, the yield is

___5.26%________?

2. For a 1-year discount bond, if F =2000 and P = 1950, the yield is

____2.56%________?

3. If a one-year $10,000 discount bond has a yield of 5%, its price is ___$95281_______?

(Hint, find the present value of the bond using its yield.)

4. If a two-year discount bond has a face value of $5000 and a yield of 3%, its price is __________?

Rate of Return

5. If a bond has a current yield of 4% and a capital gain of 3%, its rate of return is _______?

6. If a bond has a current yield of 6% and a rate of return of 4%, it has a _____ capital gain or loss.

7. If a bond has a 2% rate of return and a capital loss of 4%, its current yield is ________?

Real and Nominal Interest Rates

8. If the nominal interest rate is 3% and expected inflation is -1%, the real interest rate is ___________?

9. If the nominal interest rate is 6%, the expected rate of inflation is 5% and the actual rate of inflation is 3%, the ex post real interest rate is __________?

10. If the expected rate of inflation is 4% and the ex ante real interest rate is 4%, the nominal interest rate is _______?

You own a 10-acre vineyard and earn income by selling your grapes to wineries. Your vineyard is currently planted to Merlot grapes, but you are thinking of replanting with Syrah grapes because they are commanding a higher market price per ton. Merlot fetches $2000 per ton but Syrah sells for $2400 per ton, those prices are expected to remain stable, and you produce 5 tons per year per acre (so 50 tons per year total). Either way, you plan to sell the vineyard 5 years from now (at the end of the year) for 6-times (6x) the annual income (in year 5) from the sale of grapes (that is, you'll get the income from grape sales and then sell the vineyard for 6 times that amount at the end of year 5). However, if you switch to Syrah, it will cost you $83,000 immediately and the vines won’t produce any grapes until year 4 (that is, years 1-3 will have no sales if you plant Syrah, but years 4 and 5 will). The applicable discount rate is 14% per year. What is the NPV of switching? Round to the nearest cent. ​[Hint: Create a timeline showing the incremental annual cash flows from switching and find their NPV. Some cash flows will be negative (first 3 years) and some (years 4 and 5) will be positive.]

Read PepsiCo’s (NYSE:PEP) most recent 10-K (2019-2-15), its Proxy (DEF 14 A, 2019-3-22 and answer or produce the following:go to www.sec.gov/edgar/searchedgar/companysearch.html and search for Pepsi

1. As an analyst and using the Company’s “Long-term debt obligations” schedule as a guideline, what would you estimate the Company’s cost of borrowing to be?

2. Pepsico manages its business in “reportable segments”. List them.

3. Which is the largest segment in terms of revenue? In terms of operating profit

4. As an analyst, which two risk factors (Risk Factors Item 1a) do you consider the most important? Please ensure that your answer includes your reasoning why?

5. What was the Company’s “free cash flow” in 2018 and 2017?

6. “Operations outside of the United States generated” what percent of the Company’s consolidated net revenue?Go to

Comco Inc issued bonds that have a 8.5% coupon rate, payable semiannually. The bonds mature in 12 years, have a $1,000 face value and a 12% yield to maturity.

1.. What is the price of the bonds?

2. Exactly two years later, you observe the bonds trading at $925, what is the yield to maturity?