A trader can sell gold at $794.00 per ounce and buy it at $800.00 per ounce. The trader can invest money at 5.7% per year and borrow money at 6% per year, each compounded annually.

For what range of two-year forward prices of gold does the trader have no arbitrage opportunity? Assume no storage costs.

During the most recent fiscal year, Medical Electronics Corporation sold 2,560,000 health monitoring devises at $60 per unit. Variable operating costs were 60% of sales ($36 per unit), while fixed operating costs were $12,288,000. The cost of outstanding debt (interest expense) was $4,152,000. Medical Electronics Corporation’s tax rate is 30%. The company does not sell any other product. (PLEASE SHOW YOUR WORK).

a) Construct Medical Electronics Corporation’s income statement for the most recent fiscal year (complete the following table).

b) Compute the degree of financial leverage (DFL)

c) Interpret the calculated DFL.

d) Compute the Operating Break-even point in dollars.

e) Compute the Operating Break-even point in units.

Kumquat Farms Ltd. has decided to acquire a kumquat picking machine. The cost of the picking machine is $45,000, and it has an economic life of 10 years. At the end of seven years, the market (salvage) value is estimated to be $11,000. Seven years is the time horizon for analysis.

The owner of Kumquat Farms Ltd. has discussed this acquisition with his financial services conglomerate. It has agreed to lend him the purchase price at 10 percent per year, payable in equal blended payments at the end of each year, for seven years.

An alternative method of financing the equipment would be to lease it from the local leasing store. Annual lease payments, payable at the beginning of each of the next seven years, would be $7,750. This would be considered an operating lease.

The equipment has a CCA of 20 percent. The benefits of any tax shields are realized at the end of each year. The company’s tax rate is 25 percent. Kumquat Farms’ cost of capital is 16 percent.

a-1. Calculate PV cost of lease alternative. (Do not round intermediate calculations. Round the final answer to nearest whole dollar. Input the answer as positive value.)

PV cost           $

a-2. Calculate PV cost of borrowing/purchase alternative. (Do not round intermediate calculations. Round the final answer to nearest whole dollar. Input the answer as positive value.)

PV cost           $

b. Should Kumquat Farms Ltd. lease or buy the picking machine?

• Lease

• Borrow/Purshase

Simon recently received a credit card with a 12% nominal interest rate. With the card, he purchased an Apple iPhone 7 for $372.57. The minimum payment on the card is only $10 per month.

1. If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he pays off the card? Do not round intermediate calculations. Round your answer to the nearest whole number.

     month(s)

2. If Simon makes monthly payments of $35, how many months will it be before he pays off the debt? Do not round intermediate calculations. Round your answer to the nearest whole number.

     month(s)

3. How much more in total payments will Simon make under the $10-a-month plan than under the $35-a-month plan. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

The market consensus is that Analog Electronic Corporation has an ROE = 13%, a beta of 2.00, and plans to maintain indefinitely its traditional plowback ratio of 3/5. This year’s earnings were $3.40 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 11%, and T-bills currently offer a 5% return.

a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price?

b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Leading?

Trailing?

c. Calculate the present value of growth opportunities. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

PVGO?

d. Suppose your research convinces you Analog will announce momentarily that it will immediately change its plowback ratio to 2/5. Find the intrinsic value of the stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Intrinsic Value?

An investment project costs $16,400 and has annual cash flows of $3,500 for six years.

a. What is the discounted payback period if the discount rate is zero percent?

b. What is the discounted payback period if the discount rate is 5 percent?

Marine Tech is a young firm with a niche market in heavy equipment, specifically for the marine industry. Its owners are considering an IPO and have come to you for advice. Their projections show initial years of negative FCF, after which the numbers improve considerably. What are the methods you will use to value their firm and why? How would you advise them to price their IPO and why?

Jan sold her house on December 31 and took a $35,000 mortgage as part of the payment. The 10-year mortgage has a 10% nominal interest rate, but it calls for semiannual payments beginning next June 30. Next year Jan must report on Schedule B of her IRS Form 1040 the amount of interest that was included in the two payments she received during the year.

a. What is the dollar amount of each payment Jan receives? Round your answer to the nearest cent.

$  

b. How much interest was included in the first payment? Round your answer to the nearest cent.

$  

How much repayment of principal was included? Do not round intermediate calculations. Round your answer to the nearest cent.

$  

How do these values change for the second payment?

1. The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal increases.
2. The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal decreases.
3. The portion of the payment that is applied to interest and the portion of the payment that is applied to principal remains the same throughout the life of the loan.
4. The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal also declines.
5. The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal also increases.

c. How much interest must Jan report on Schedule B for the first year? Do not round intermediate calculations. Round your answer to the nearest cent.

$  

Will her interest income be the same next year?
-Select-Her interest income will increase in each successive year.Her interest income will remain the same in each successive year.She will not receive interest income, only a return of capital.Her interest income will decline in each successive year.She will receive interest only when the mortgage is paid off in 10 years.Item 6

d. If the payments are constant, why does the amount of interest income change over time?

1. As the loan is amortized (paid off), the beginning balance, hence the interest charge, increases and the repayment of principal increases.
2. As the loan is amortized (paid off), the beginning balance, hence the interest charge, declines and the repayment of principal increases.
3. As the loan is amortized (paid off), the beginning balance, hence the interest charge, declines and the repayment of principal declines.
4. As the loan is amortized (paid off), the beginning balance, hence the interest charge, increases and the repayment of principal declines.
5. As the loan is amortized (paid off), the beginning balance declines, but the interest charge and the repayment of principal remain the same.

To support growth strategies and combat competition with rivals, businesses seek external capital to further develop products and services in hopes to create new sales opportunities. Since capital investment often involves a huge money investment, longer time engagement and risks of uncertainties, any decision shall not be taken lightly and shall be carefully evaluated before putting money to start a long-term project. The goal is to ultimately make the right accept/reject decision. Respond to the following in a minimum of 175 words: Discuss criteria and techniques used to evaluate a capital project. Which criteria and techniques do you consider the most useful? As a financial manager, would you use the same criteria or evaluation techniques for any capital project? Why or why not?

During the most recent fiscal year, Medical Electronics Corporation sold 2,560,000 health monitoring devises at $60 per unit. Variable operating costs were 60% of sales ($36 per unit), while fixed operating costs were $12,288,000. The cost of outstanding debt (interest expense) was $4,152,000. Medical Electronics Corporation’s tax rate is 30%. The company does not sell any other product. (PLEASE SHOW YOUR WORK).

a) Construct Medical Electronics Corporation’s income statement for the most recent fiscal year (complete the following table).

b) Compute the degree of operating leverage (DOL)

c) Interpret the calculated DOL.

Rate the five functions of insurers in terms of (1) importance, and separately, (2) difficulty. Explain your reasoning.

The five functions are:

1. Ratemaking
2. Production
3. Underwriting
4. Loss Adjustment
5. Investment

current challenges for Australian MNC investing abroad. Given the current U.S. trade protectionism policy, which creates trade frictions with China, Japan, the European Union, Canada, Australia and Mexico, please illustrate the main risks associated with an Australian MNC which plans to create a subsidiary in countries and regions such as the United States, China, Japan and the European Union (pick only one country/region to discuss).

5.22

                        Year 0             Year 1            Year 2             Year 3             Year 4

Project A         (4,000,000)     1,600,000       1,800,000        2,000,000        2,100,000

Project B         (4,200,000)     500,000          1,700,000        1,900,000        2,000,000

The cost of capital for Project A is assumed to be 14%.

For Project B, which is the riskier project of the two, a risk-adjusted cost of capital of 15% is applied.

(a) Assess the projects using the investment appraisal technique of Net Present Value.

(b) Assess them using the investment appraisal technique of Internal Rate of Return.