Question 5

Consider the following stock information about Tencent and HSBC

1. What’re the expected return on each stock?
2. What’re the standard deviation on each stock?
3. The risk free rate is 1.5%. Based on the CAPM, If Tencent’s market beta is 1.5, what’s the beta of HSBC?
4. If you invested 65 percent in Tencent and 35 percent in HSBC, what is your portfolio expected return? The standard deviation? .
5. Given the portfolio information in (d) and beta information in (c), what is the portfolio’s market beta?

Question 6

SmartCar Corporation has 1 million shares of common stock outstanding, 20,000 shares of preferred stock outstanding, and 40,000 corporate bonds outstanding. The common stocks sell for $25, with a market beta of 1.5. The corporate bonds sell for $950 and the current YTM is 5%. The preferred stock currently sells for $100, with an annual dividend payment of $8 per share. The risk-free rate is 2% and the market expected return is 8%. SmarCar’s corporate tax rate is 35%. What is SmartCar’s cost of capital?

Jose, age 25, currently saves $7000 per year in his retirement account which is expected to earn 5% return. Jose is planning to retire at 62 and needs to fund his retirement upto age, 85. He has estimated that the annual amount needed during retirement would be $47,000 in today's dollar terms. The inflation rate is expected to be 1.5%. Compute the additional annual savings (if needed) to fund the shortfall in retirement account (if any).

A: $6030

B: $6090

please show work

You must evaluate a proposal to buy a new milling machine. The base price is $109,000, and shipping and installation costs would add another $13,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,400. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $9,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $56,000 per year. The marginal tax rate is 35%, and the WACC is 10%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. How should the $4,500 spent last year be handled? The cost of research is an incremental cash flow and should be included in the analysis. Only the tax effect of the research expenses should be included in the analysis. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent. $ What are the project's annual cash flows during Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest cent. Year 1: $ Year 2: $ Year 3: $ Should the machine be purchased?

Question 3

Parker & Stone, Inc., is considering a new project that requires an initial fixed asset investment of 1.2 million. The project also requires an initial investment in net working capital of $250,000. The project is expected to generate $950,000 in sales and cost $400,000 every year for three years. The fixed asset follows a straight-line depreciation. After three years, the fixed asset has a zero book value but is estimated to have a market value of $200,000, and the net working capital will fully recovery. The corporate tax rate is 35%.

1. What are the operating cash flows in each year?
2. What are the cash flows from net working capital and the net capital spending in year 3?
3. What are the CFFA in each year?
4. If the required return is 10% for a similar risk level of project, should the company implement this project?

Al finds an expensive watch as he is walking from the parking lot into school. The clasp looks broken, so he takes it to a jeweler to have it appraised. While pretending to look at the clasp, the jeweler’s employee removes one of the gem stones surrounding the watch face and steals it.

(a) If Al sues the jeweler and the jeweler’s employee for theft, will he succeed? If Tim, the true owner, sees Al in the jewelry store and confronts him with proof of his ownership does Al have to relinquish the watch to Tim?

(b) Assume Al knew the watch was Tim’s due to an inscription on the back of the watch. Is Al guilty of a tort, if he does not return the watch? Is he required to try to find Tim and let him know about the watch?

(c) Assume Tim knows he has lost the watch. He goes back to the parking lot to look for it but does not find it. Tim leaves for Florida the next day, and gives up his search for the watch. How does this affect Al’s rights to the watch. Explain how the law applies to the facts.

Adirondack Savings Bank (ASB) has $1 million in new funds that must be allocated to home loans, personal loans, and automobile loans. The annual rates of return for the three types of loans are 5% for home loans, 10% for personal loans, and 7% for automobile loans. The bank’s planning committee has decided that at least 40% of the new funds must be allocated to home loans. In addition, the planning committee has specified that the amount allocated to personal loans cannot exceed 60% of the amount allocated to automobile loans.

In a floating exchange rate system, a current account deficit is likely to be corrected by

a) a depreciation in its exchange rate

b) an appreciation of the home currency

c) a prolonged period of hyperinflation

d) an expansion of domestic money

e) a decrease in domestic tax rates

A small factory is considering replacing its existing coining press with a newer, more efficient one. The existing press was purchased five years ago at a cost of $145,000, and it is being depreciated according to a 7-year MACRs depreciation schedule. The CFO estimates that the existing press has 6 years of useful life remaining. The purchase price for the new press is $274,000. The installation of the new press would cost an additional $36,000, and this cost would be added to the depreciable base. The new press (if purchased) would be depreciated using the 7-year MACRs depreciation schedule. Interest expenses associated with the purchase of the new press are estimated to be roughly $8,200 per year for the next 6 years. The appeal of the new press is that it is estimated to produce a pre-tax operating cost savings of $78,000 per year for the next 6 years. Also, if the new press is purchased, the old press can be sold for $25,000 today. The CFO believes that the new press would be sold for $29,000 at the end of its 6-year useful life. Assume that NWC would not be affected. The company has an average tax rate of 28% and a marginal tax rate of 31%. The cost of capital (i.e., discount rate) for this project is 13.20%. Develop the incremental cash flows for this replacement decision and use them to calculate NPV, IRR, and MIRR. Then offer a recommendation on whether or not the existing coining press should be replaced at this time. And please make sure that it is easy to follow how you arrived at your incremental cash flows! (20 points)

Situation 2: “While I knew it might happen someday, I didn't expect it right now.” This was the reaction of Patrick when his company merged with another organization and moved its offices to another country, resulting in him losing his job. Patrick does have some flexibility in his shortterm finances since he has three months of living expenses in a savings account. However, "three months can go by very quickly," as Patrick noted.

a. Identify the main financial planning issues that need to be addressed.

b. Suggest any TWO additional information either quantitative or qualitative you need before making recommendation.

c. Recommend the most appropriate TWO actions based on the information provided and your assessment of the situation,

Here are six Financial Benefits of Home Ownership. 1. Builds Wealth 2. Builds Equity 3. Tax Deduction Benefits 4. Capital Gains Exclusion 5. Forced Savings Plan 6. Cheaper Than Renting. Please give your explanation and description of how these are beneficial and how they are beneficial.

What's random walk hypothesis in investment management

Situation 3: Nina, age 23, recently received a $30,000 gift from her aunt. Nina is considering various uses for these unexpected funds including paying off credit card bills from her last vacation or setting aside money for a down payment on a vehicle. Or she might invest the money in a tax-deferred annuity for retirement purpose. Another possibility is using the money for technology certification courses to enhance her earning power. She is overwhelmed by the choices and comments to herself, "I want to avoid the temptation of wasting the money on impulse items. I want to make sure I use the money on things with lasting value.”

a. Identify the main financial planning issues that need to be addressed.

b. Suggest any TWO additional information either quantitative or qualitative you need before making recommendation.

c. Recommend the most appropriate TWO actions based on the information provided and your assessment of the situation,