Probability distribution for the one year holding-period return of two stocks. Assume that risk-free rate is 1% and the correlation between A and B is 0.8.
|
State of Economy |
Probability |
Return Stock A |
Return Stock B |
|
Recession |
40% |
-9% |
-5% |
|
Normal |
35% |
11% |
20% |
|
Boom |
25% |
22% |
15% |
U = E(r) – 0.5As2
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Consider the following income statement
Net Sales 2,600.00
Cost of Goods Sold -1,400.00
SG&A Expenses -400.00
Depreciation -150.00
Other Operating Expenses -100.00
Operating income 550.00
Interest Expenses -200.00
Income Before Tax 350.00
Income Tax (25%) -140.00
Net Profit After Taxes 210.00
Please show it in Excel, thanks!
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150% of his money in the risky portfolio P is allocated by investor A. Portfolio P has 3% excess return and 7% standard deviation, both in annualized terms. Borrowing costs are rising, and investor A is worried about that.
Investor B invests also in Portfolio P. But Investor B is not worried about rising borrowing rates. Why would that be the case?
Assume that the utility is, U = E(r) – 0.5As2 to the portfolio with expected return E(r) and variance of return s2, where A measures the investor’s risk aversion.
1. What is the risk aversion of Investor A?
2. If one chooses to invest 100% of Portfolio P, what is the risk aversion of him?
3. Why is Investor B not worried about rising borrowing rates?
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What are some of the alternative sources of equity capital for private firms (alternative to IPO)? Name at least three sources. What are (dis-)advantages to a private company of raising money from these alternative sources? Explain briefly.
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Briefly explain what real options are.
- Describe the benefits and costs of delaying investment opportunity.
- Give an example of in-the-money real option.
- Will it be optimal to exercise such option immediately? Why or why not?
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| eBook
Problem 9-19 Joseph Berio is a loan officer with the First Bank of Tennessee.
Red Brick, Inc., a major producer of masonry products, has applied
for a short-term loan. Red Brick supplies building material
throughout the southern states, with brick plants located in
Tennessee, Alabama, Georgia, and Indiana.
To help decide whether to grant the loan, compute the following ratios and compare the results with the company's previous year ratios and industry averages. Assume there are 365 days in a year. Do not round intermediate calculations. Round your answers to two decimal places. Current ratio of _________ times is -Select- higher thanlower thanequal toItem 2 the industry average and -Select-higher thanlower thanequal toItem 3 the ratio in the previous year. Quick ratio of ________ times is -Select- higher thanlower thanequal toItem 5 the industry average and -Select- higher thanlower thanequal toItem 6 the ratio in the previous year. Inventory turnover ratio of_______ is -Select- higher thanlower thanequal toItem 8 the industry average and -Select-higher thanlower thanequal toItem 9 the ratio in the previous year. Average collection period of _______ days is -Select- higher thanlower thanequal toItem 11 the industry average and -Select- higher thanlower thanequal toItem 12 the ratio in the previous year. Debt ratio of % is -Select-higher thanlower thanequal toItem 14 the industry average and -Select-higher thanlower thanequal toItem 15 the ratio in the previous year. Times-interest-earned ratio of ______ is -Select- higher than lower than equal to Item 17 the industry average and -Select-higher than lower than equal to item 18 the ratio in the previous year. Return on equity ratio of _____ % is -Select-higher thanlower thanequal toItem 20 the industry average and -Select-higher thanlower thanequal toItem 21 the ratio in the previous year. Return on assets ratio of _______ % is -Select-higher thanlower thanequal toItem 23 the industry average and -Select-higher thanlower thanequal toItem 24 the ratio in the previous year. Operating profit margin ratio of ______ % is -Select-higher thanlower thanequal toItem 26 the industry average and -Select-higher thanlower thanequal toItem 27 the ratio in the previous year. Net profit margin ratio of ________ % is -Select-higher thanlower thanequal toItem 29 the industry average and -Select-higher thanlower thanequal toItem 30 the ratio in the previous year. |
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Katty Kit has announced a rights offer to raise $8 million. There are currently 1,500,000 shares on issue trading at $21.06 each. The total number of shares on issue after the the rights issue will be 2,000,000. Calculate the theoretical ex-rights price and the value of a right.
|
$19.80 ; $3.80 |
||
|
$16.00; $5.06 |
||
|
$21.06; $1.27 |
||
|
$19.80; $1.80 |
||
|
Cannot be determined, insufficient information |
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A benchmark index has three stocks priced at $7, $43, and $56. The number of outstanding shares for each is 500,000 shares, 405,000 shares, and 553,000 shares, respectively. If the prices changed to $14,44 and 52 and the number of outstanding shares for each changed to 250,000 shares 405,000 shares and 553,000 shares today, What is the price-weighted (PW) index value and equally weighted (EW) index value today if yesterday PW index and EW index value were 910 and 1012?
In: Finance
In: Finance
In: Finance
NPV
A project has annual cash flows of $4,000 for the next 10 years and then $9,500 each year for the following 10 years. The IRR of this 20-year project is 13.04%. If the firm's WACC is 11%, what is the project's NPV? Round your answer two decimal spaces.
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You are considering a project that requires an initial investment of $110,000 with a cost of capital of 8%. You expect the project to have a five-year life, and produce cash flows of $19,000 in year 1, $38,000 in year 2, $58,000 in year 3, $29,000 in year 4 and $10,000 in year 5.
What is this project’s Discounted Payback Period?
Group of answer choices
A. 3.96 years
B. 2.91years
C. 3.65 years
D. 3.28 years
In: Finance
Cornerstone Exercise 20.1 (Algorithmic)
EOQ
Thomas Corporation produces heating units. The following values apply for a part used in their production (purchased from external suppliers):
| D = 6,480 |
| Q = 180 |
| P = $ 30 |
| C = $ 3.00 |
Required:
1. For Thomas, calculate the ordering cost, the carrying cost, and the total cost associated with an order size of 180 units. If required, round your answers to the nearest cent.
| Ordering cost | $ |
| Carrying cost | |
| Total cost | $ |
2. Calculate the EOQ and its associated ordering cost, carrying cost, and total cost. If required, round your answers to the nearest cent.
| EOQ | units | |
| Ordering cost | $ | |
| Carrying cost | ||
| Total cost | $ |
3. What if Thomas enters into an exclusive supplier agreement with one supplier who will supply all of the demands with smaller, more frequent orders? Under this arrangement, the ordering cost is reduced to $ 0.3 per order.
Calculate the new EOQ. (Round your answer to one decimal place.)
units
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WACC 10.00%
|
|
0 1 2 3 4
l l l l l
ProjA -$1,000 $675 $650
ProjB -$1,000 $1,000 $700 $50 $50
In: Finance
WACC 10.00%
|
|
0 1 2 3 4
l l l l l
ProjA -$1,050 $675 $650
ProjB -$1,050 $360 $360 $360 $360
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