HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). The following table summarizes the yield to maturity for five-year (annual-pay) coupon corporate bonds of various ratings:

Halcyon Lines is considering the purchase of a new bulk carrier for $8 million. The
forecasted revenues are $5 million a year and operating costs are $4 million. A major
refit costing $2 million will be required after both the fifth and tenth years. After 15
years, the ship is expected to be sold for scrap at $1.5 million. If the discount rate is 8%,
what is the ship’s NPV?

Recalculate the NPV of the previous problem at interest rates of 5, 10, and 15%. Plot the points on a
graph with NPV on the vertical axis and the discount rates on the horizontal axis. At what discount rate
(approximately) would the project have zero NPV? Please explain how you can check your answer.

At the time of his death Jason had the following assets:

•     Home owned jointly with rights of survivorship with his wife Sally, valued at $500,000.

•     Stock account in his individual name, valued at $250,000.

•     Life estate received from his mother, Judy, in a family vacation home. The home is worth $1,000,000. Jason’s sister Toby is the remainder beneficiary.

•     IRA worth $750,000. His wife Sally is the primary beneficiary.

Who will receive the family vacation home?

For this part you will need to use your calculator.

1. What is the Monthly Mortgage Payment on a $125,000 Home with an 80% LTV with a 5% Interest Rate, 30-Year Fixed Rate Mortgage (Constant Payment Mortgage)?

$536.82

2. What is the Monthly Mortgage Payment on a $125,000 Home with an 80% LTV with a 6% Interest Rate, 30-Year Fixed Rate Mortgage (Constant Payment Mortgage)?

$599.55

3. How much more with the person with the mortgage in question #8 pay over the person with the mortgage in question #7 if neither of the borrowers refinance over the course of the 30-Year term?

$215,838.19 - $193,255.78 = $22,582.41

4. How much less can the borrower with a 6% mortgage borrow to keep the same monthly mortgage payment as the borrower with a 5% if both borrowers have a 30-Year Fixed Rate Mortgage without refinancing over the mortgage term?

I need help with the last question please.

Problem 2-12
Free Cash Flows

Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)

Using Rhodes Corporation's financial statements (shown above), answer the following questions.

1. What is the net operating profit after taxes (NOPAT) for 2016? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
   $   million______
2. What are the amounts of net operating working capital for both years? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
   2016 $   million________
   2015 $   million________
   
3. What are the amounts of total net operating capital for both years? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
   2016 $   million_______
   2015 $   million_______
   
4. What is the free cash flow for 2016? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
   $   million_______
   
5. What is the ROIC for 2016? Round your answer to two decimal places.
   %_______
   
6. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.) Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.

   After-tax interest payment	$   million
   Reduction (increase) in debt	$   million
   Payment of dividends	$   million
   Repurchase (Issue) stock	$   million
   Purchase (Sale) of short-term investments	$   million

Kansas Corp., an American company, has a payment of €6.2 million due to Tuscany Corp. one year from today. At the prevailing spot rate of 0.90 €/$, this would cost Kansas $6,888,889, but Kansas faces the risk that the €/$ rate will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy €6.2 million forward today at a one-year forward rate of 0.89 €/$. Strategy 2 is to pay a premium of $112,000 for a one-year call option on €6.2 million at an exchange rate of 0.88 €/$.

a. Suppose that in one year the spot exchange rate is 0.85 €/$. What would be Kansas’s net dollar cost for the payable under each strategy? (Round your answer to the nearest whole dollar amount.)

Strategy 1:_____

Strategy 2:______

b. Suppose that in one year the spot exchange rate is 0.95 €/$. What would be Kansas’s net dollar cost for the payable under each strategy? (Round your answer to the nearest whole dollar amount.)

Strategy 1:________

Strategy 2:________

​(Nonannual compounding using a calculator​) Should we have bet the​ kids' college fund at the dog​ track? Let's look at one specific case of a college professor​ (let's call him Prof.​ ME) with two young children. Three years​ ago, Prof. ME invested ​$170 000 hoping to have ​$440 000 available 14 years later when his first child started college.​ However, the​ account's balance is now only ​$150 000. ​Let's figure out what is needed to get Prof.​ ME's college savings plan back on track. a. What was the original annual rate of return needed to reach Prof.​ ME's goal when he started the fund 3 years​ ago? b. Now with only ​$150 000 in the fund and 11 years remaining until his first child starts​ college, what APR would the fund have to earn to reach Prof.​ ME's ​$440,000 goal if he adds nothing to the​ account? c. Shocked by his experience of the past 3 ​years, Prof. ME feels the college mutual fund has invested too much in stocks. He wants a​ low-risk fund in order to ensure he has the necessary ​$440 000 in 11 ​years, and he is willing to make​ end-of-the-month deposits to the fund as well. He later finds a fund that promises to pay a guaranteed APR of 4.5 percent compounded monthly. Prof. ME decides to transfer the ​$150 000 to this new fund and make the necessary monthly deposits. How large of a monthly deposit must Prof. ME make into this new fund to meet his ​$440 000 ​goal?

d. Now Prof. ME gets sticker shock from the necessary monthly deposit he has to make into the guaranteed fund in the preceding question. He decides to invest the ​$150 000 today and ​$450 at the end of each month for the next 11 years into a fund consisting of 50 percent stock and 50 percent​ bonds, and hope for the best. What APR would the fund have to earn for Prof. ME to reach his ​$440 000 ​goal?

Your opinion about the extent to which markets are efficient will have a significant impact on your choice re effective trading strategies. Briefly explain why and how this is true.

What are some of the consequences of the corporate governances followed in Germany (bank based corporate governance) & United States (market based corporate governance)?

To fund some of its expansion plans, Ohio Rubber & Tire (ORT) recently issued 30-year bonds with low coupon rates. Investors were willing to purchase the bonds despite the low coupon rates because ORT’s debt has consistently been rated AAA during the past decade, which means that bond rating agencies consider the company’s default risk to be extremely low.

Now ORT is considering raising additional funds by issuing new debt. The company plans to use the new funds to finance additional expansion. Unlike its previous expansion efforts, however, ORT now plans to grow the firm by purchasing young firms that just “went public” that are not in the tire and rubber industry.

Wally, who works closely with ORT’s investment banker, has been assigned the task of determining how to best raise the desired funds. After speaking with the investment banker, some friends who work at other companies, and peers in ORT’s international subsidiaries, Wally is seriously considering recommending to management that ORT issue a new security that has the characteristics of both debt and equity. The security, which was recently introduced in the U.S. financial markets, is classified as debt because fixed interest payments that are tax deductible are paid every year. Unlike conventional bands, however, these hybrid bonds, which are called “boondocks,” have maturities of 50 to 60 years. In addition, the firm is not considered to be in default if it misses interest payments when the firm’s credit rating drops below B+. Most experts consider boondocks to be quite complex financial instruments.

Through his research, Wally discovered that boondocks have been used for quite some time outside of the Unite States. Compared with conventional debt, companies that have used boondocks have increased their earnings per share (EPS) significantly. A major reason EPS increases is because the cost of a bondock generally is much lower than equity, but the instrument is comparable to equity financing with respect to maturity and default risk. For example, Wally discovered that ORT could issue boondocks with an after-tax cost equal to 5%, which is only slightly higher than the after-tax cost of issuing conventional debt and is approximately one-third the cost of issuing new equity. Although boondocks are considered risky, the actual degree of risk is unknown. The friends and coworkers with whom Wally consulted seem to think there is a slight chance that investors—both stockholders and bondholders—would earn returns significantly lower than would be earned with conventional debt when the company performs extremely poorly. The opposite should occur when the company performs very well.

The major drawback to issuing boondocks is that they will significantly increase the financial leverage of ORT, and thus the value of the recently issued bonds will decrease substantially. On the other hand, Wally thinks that issuing boondocks can be a win-win proposition for ORT and its common stockholders. If the company’s expansion plans are unsuccessful, the market values of both its debt and its equity would decrease to the point that it would be attractive for the firm to repurchase these financing instruments in the capital markets. If this is true, then issuing boondocks would benefit stockholders at the expense of bondholders. ORT’s executives are major stockholders because their bonuses and incentives are paid in the company’s stock.

What should Wally do? What would you do if you were Wally?

Requirements: Develop a ten-year sales projection assuming the growth as below:

1. 1% for 2^nd year
2. 3% for 3^rd to 5^th year
3. 8% for 6^th to 10^th year

M/S. Marutham Investment Bond 2013 was issued in January 2014, with a maturity period of 2 years. With a Coupon payment of 7% per annum made every 6 months with a Face value of Rs.100. What is the YTM for the bond, if the prevailing market price was Rs. 84 as at January 2014?

Homework (Submit in groups)
You are 20 and plan to work for 45 years until you retire at 65. You expect to live until you are 90.
You will collect a pension. Your annual pension payment will be equal to your final salary times a 3% crediting rate times the number of years that you work.
Your starting salary (paid at the end of the year) is $40,000. You expect to get a 4% annual raise.
Your discount rate is 5%.

Draw a timeline and Identify:
• Annual salary payment
• Time of retirement
• Annual pension payment
• Value of pension at retirement
• Value of pension today