1. Calculate the future value of an annuity due given the following information:

Number of periods:                             4

Interest rate:                                        9%

Payments of $100 made at the beginning of each period.

2. Calculate the present value of an ordinary annuity given the following information:

Number of periods:                             7

Interest rate:                                        3%

Payments:                                            $500

3. How many times per year is a principal compounded with continuous compounding?

Suppose your business has $7 million set aside for an expenditure in three months. How would you choose to invest it in the meantime? Would your decision be different if there were some chance that you might need the money earlier?

Question 1 (a) Uzumba Maramba Pfungwa P/L has the following information about 3 projects A, B and C that are being considered by Executive Committee Year Project A Project B Project C 0 ($15 000) ($15 000) (15 000) 1 11 000 3 500 42 000 2 7 000 8 000 (4 000) 3 4 800 13 000 -Yellowbone, the finance manager, believes all the 3 groups have risk characteristics similar to the average risk of the firm and hence the firm’s cost capital (12%) will apply. You have been asked to prepare a report covering the following: a) Calculate the payback period of Project A and B; b) Calculate the NPV of Projects A, B & C; c) Calculate the IRR for Projects A & B; d) Discuss the merits and demerits of accounting rate of return (ARR) as a project evaluation technique

2) Efram and Sofia, both aged 24, are newlyweds. Their after-tax salaries are $55 000 and $49 000, respectively. They have been renting a flat since they started work but have decided to buy a house. Their decision has been made easier because Efram’s parents said that when they retire at age 65 in one year’s time they would withdraw $40 000 from their combined superannuation funds and give the money to Efram and Sofia to help them to buy a house. When they approached the bank for a loan they had to provide details of their income, expenses, assets and liabilities to the lending officer. The items provided for their personal balance sheet were:

They also advise the lending officer that their monthly commitments are:

■          rent $1280

■          car loans $290.

They would prefer not to cash in their managed investment fund at present as the value has fallen by 8% over the last 2 months. They have instructed the fund manager to reinvest the distributions rather than receive them in cash. Their intention is to leave the investment to accumulate to meet the education expenses of the children in the future. They anticipate paying off their credit card debt in full next month and they would also have paid off the car loans in the next 12 months. They also advise the lending officer that their current rate of household expenses (not including the rent and repayments) is about $2400 per month.

QUESTION

Prepare a net worth statement and ratio analysis for their current situation.

Calculate the standard deviation of this portfolio for each of the cases

The e-move Ltd Company is an established and growing manufacturer of electric mobility scooters. The company currently produces and sells 70,000 scooters annually and enjoys a constant year on year increase in sales volume of 6% and has a cost of capital 12%. However, it has recently suffered from production quality problems that had increased the cost of product failure. The e-move Ltd has recently paid £100,000 to the external consult “Op-Focus Consulting Ltd” for an engineering review of the company operations. The report of Op-Focus Ltd has found that the cost of product failure is currently as in the following table and if nothing change, this cost is going to increase in line with the increase of the production and sales of 6% over the 5 years of the investment:

You are a senior manager in e-move Ltd and your task is to prepare a report for the Board of the company considering the following two alternatives: Option 1 - Operational improvements: Undertake an extensive review and modernization of the production and operations. This option will require the commissioning of the necessary engineering study and will incur an immediate cost of £500,000. It will also require an immediate investment in new machines of £25,000,000. This new machinery is expected to have a useful economic life of 5 years and zero residual value. The modernization of operations will result in the reduction of the production cost by £75 per scooter and the cost from product failure will be reduced by 90% but still will be increasing at 6% per year, in line with the increasing production and sales. Option 2 – Production changes: E-move Ltd can change its current supplier of the electric motors. The new motors will be more efficient and some modifications in the production line will save assembly costs. This second option requires an additional immediate investment of £5,000,000, which will have useful economic life 5 years and zero residual value. It will also result to an increase of fixed production costs by £2,000,000 including depreciation. This investment will save £30 per scooter in assembly costs, which will obviously increase in line with the production and sales volume over the 5 years of the investment. 3 | P a g e It is given that there are no taxes and inflation and only one of the two options can be undertaken.

Required: Estimate the Net Present Value and the Internal Rate of Return of Option 1 and Option 2, and show your calculations.

Consider a two-step binomial tree for a European put option on a non-dividend paying stock “XY”. The current price of stock “XY” is $60. Over each of the next two 6-month periods the stock price is expected to go up by 10% or down by 10%. The risk-free rate of interest is 8% per annum with continuous compounding. The European put option will expire in 1 year and has an exercise price of $55.

a) Calculate the probabilities that the stock price goes up and down in the risk neutral world. [4 marks]

b) Calculate the stock price at each node of the binomial tree. [7 marks]

c) Use the binomial option pricing formula to calculate the value of the put option at each node of the tree. [12 marks]

d) Can you explain why, in your calculations of the option price, you are allowed to use the risk-free rate of interest? [7 marks]

Can I get answer on the case study given below asap

Case #2

Financial Reporting and Uncertainty

Textbooks tend to rely on clear and unambiguous cases. However, in practice, recording
transactions in the accounting system requires application of defined characteristics of the
elements of financial statements to unusual or uncertain situations. Practitioners must
understand the inherent uncertainty in accounting measures and distinctions between closely
related accounting concepts when evaluating the effects of transactions on the financial
statements.
Required (4 points):
The left hand menu on the FASC site contains a link to the Conceptual Framework. Follow
that link and access Concept #6 Elements of the Financial Statements to answer the
following items. For each of the four items below, be sure to identify the paragraph(s)
you are referencing (e.g., ‘CON6 Par12.’).
(1) What are the three essential characteristics of assets?
(2) What are the three essential characteristics of liabilities?
(3) Paraphrase the paragraph(s) discussing uncertainty and its effect on financial
statements.
(4)  Paraphrase the paragraph(s) discussing the difference between realization and
recognition.

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Calculation of individual costs and WACC   Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital.

The weighted average cost is to be measured by using the following​weights: 40​% long-term debt, 10​% preferred stock, and 50​% common stock equity​ (retained earnings, new common​ stock, or​ both). The firm’s tax rate is 25​%.

Debt: The firm can sell for $1,010 a 14​-year, ​$1,000​-par-value bond paying annual interest at a 8.00​% coupon rate. A flotation cost of 3.5​% of the par value is required.

Preferred stock: 7.50​% (annual dividend) preferred stock having a par value of ​ $100 can be sold for $92. An additional fee of $2 per share must be paid to the underwriters.

Common stock: The​firm’s common stock is currently selling for $50 per share. The stock has paid a dividend that has gradually increased for many ​years, rising from ​$2.25 ten years ago to the ​$4.43 dividend​ payment, Upper D 0​, that the company just recently made. If the company wants to issue new common ​stock, it will sell them ​$2.50 below the current market price to attract​ investors, and the company will pay ​$4.00 per share in flotation costs.  

a. Calculate the after-tax cost of debt.

b. Calculate the cost of preferred stock.

c. Calculate the cost of common stock​ (both retained earnings and new common​ stock).

d. Calculate the WACC for Dillon Labs.

Please Show Work.

Maverick company is a publicly-traded company, with 20 million shares trading at $ 70 a share and $ 600 million in debt (market value as well as book value) outstanding. The firm derives 70% of its value from cloud storage and hosting, and the remaining 30% from technical service. The un-levered beta is 0.8 for firms in the cloud business and 1.2 for firms in the technical service business. Maverick company is rated A and can borrow money at 5%. The risk-free rate is 2% and the market risk premium is 8%; the corporate tax rate is 30%, and the firm has a capital gains tax rate of 20%

1. Estimate the cost of capital for Maverick Company.

Cory and Tisha have a total household gross monthly income of $7,000 and monthly debt repayment of $911, what is the maximum mortgage loan amount for which Cory and Tish could qualify? Monthly real estate tax and homeowner’s insurance together are estimated to be $170 per month. Use 4 percent as the current rate of interest and assume a 30-year, fixed rate mortgage.

1. Explain the 28 percent rule, and calculate the mortgage loan amount under the 28 percent rule.

2. Explain the 36 percent rule, and calculate the mortgage loan amount under the 36 percent rule.

3. What other information would be necessary or useful to help Cory and Tisha determine the appropriate loan amount?

Lasting Impressions (LI) Company is a medium-sized commercial printer of promotional advertising brochures, booklets, and other direct-mail pieces. The firm’s major clients are ad agencies based in New York and Chicago. The typical job is characterized by high quality and production runs of more than 50,000 units. LI has not been able to compete effectively with larger printers because of its existing older, inefficient presses. The firm is currently having problems meeting run length requirements as well as meeting quality standards in a cost-effective manner. The general manager has proposed the purchase of one of two large, six-color presses designed for long, high-quality runs. The purchase of a new press would enable LI to reduce its cost of labor and therefore the price to the client, putting the firm in a more competitive position. The key financial characteristics of the old press and of the two proposed presses are summarized in what follows. Old press Originally purchased 3 years ago at an installed cost of $400,000, it is being depreciated under MACRS using a 5-year recovery period. The old press has a remaining economic life of 5 years. It can be sold today to net $420,000 before taxes; if it is retained, it can be sold to net $150,000 before taxes at the end of 5 years. Press A This highly automated press can be purchased for $830,000 and will require $40,000 in installation costs. It will be depreciated under MACRS using a 5-year recovery period. At the end of the 5 years, the machine could be sold to net $400,000 before taxes. If this machine is acquired, it is anticipated that the current account changes shown in the following table would result. Integrative Case 5 Cash (+) $ 25,400 Accounts receivable (+) 120,000 Inventories (-) 20,000 Accounts payable (+) 35,000 Press B This press is not as sophisticated as press A. It costs $640,000 and requires $20,000 in installation costs. It will be depreciated under MACRS using a 5-year recovery period. At the end of 5 years, it can be sold to net $330,000 before taxes. Acquisition of this press will have no effect on the firm’s net working capital investment. The firm estimates that its earnings before depreciation, interest, and taxes withthe old press and with press A or press B for each of the 5 years would be as shown in the table at the top of the next page. The firm is subject to a 40% tax rate. The firm’s cost of capital, r, applicable to the proposed replacement is 14%. Earnings before Depreciation, Interest, and Taxes for Lasting Impressions Company’s Presses Year - Old press - Press A - Press B 1- $120,000 - $250,000 - $210,000 2 - 120,000 - 270,000 - 210,000 3 - 120,000 - 300,000 - 210,000 4 - 120,000 - 330,000 - 210,000 5 - 120,000 - 370,000 - 210,000

TO DO

a. For each of the two proposed replacement presses, determine:

(1) Initial investment.

(2) Operating cash inflows. (Note: Be sure to consider the depreciation in year 6.)

(3) Terminal cash flow. (Note: This is at the end of year 5.)

b. Using the data developed in part a, find and depict on a time line the relevant cash flow stream associated with each of the two proposed replacement presses, assuming that each is terminated at the end of 5 years.

c. Using the data developed in part b, apply each of the following decision techniques:

(1) Payback period. (Note: For year 5, use only the operating cash inflows—that is, exclude terminal cash flow—when making this calculation.)

(2) Net present value (NPV).

(3) Internal rate of return (IRR).

Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $7.2 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. If the land were sold today, the net proceeds would be $7.69 million after taxes. In five years, the land will be worth $7.99 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.36 million to build. The following market data on DEI’s securities are current: Debt: 91,800 7.2 percent coupon bonds outstanding, 26 years to maturity, selling for 94.1 percent of par; the bonds have a $1,000 par value each and make semiannual payments. Common stock: 1,660,000 shares outstanding, selling for $94.90 per share; the beta is 1.29. Preferred stock: 78,000 shares of 6.4 percent preferred stock outstanding, selling for $92.90 per share. Market: 7.05 percent expected market risk premium; 4.9 percent risk-free rate. DEI’s tax rate is 24 percent. The project requires $870,000 in initial net working capital investment to get operational. a. Calculate the project’s Time 0 cash flow, taking into account all side effects. Assume that any NWC raised does not require floatation costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) b. The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of +3 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI’s project. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. The manufacturing plant has an eight-year tax life, and DEI uses straight-line depreciation. At the end of the project (i.e., the end of Year 5), the plant can be scrapped for $1.59 million. What is the aftertax salvage value of this manufacturing plant? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) d. The company will incur $2,390,000 in annual fixed costs. The plan is to manufacture 13,900 RDSs per year and sell them at $11,300 per machine; the variable production costs are $10,500 per RDS. What is the annual operating cash flow, OCF, from this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) e. Calculate the project's net present value. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) f. Calculate the project's internal rate of return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

An Apple annual coupon bond has a coupon rate of 5.1%, face value of $1,000, and 4 years to maturity. If its yield to maturity is 5.1%, what is its Modified Duration? Answer in years, rounded to three decimal places.