You are considering a new product launch. The project will cost $4,500,000, have a five-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 750 units per year; price per unit will be $15,500, variable cost per unit will be $12,200, and fixed costs will be $850,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 25 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±12 percent. 1. What are the upper and lower bounds for these projections? What are NPVs for the base-case, the best-case and worst-case scenarios?(20 Points)2. What is the accounting break-even level of output for this project (ignoring taxes)? (5 Points)3. What is the cash break-even level of output for this project (ignoring taxes)? (5 Points)4. What is the financial break-even level of output for this project (ignoring taxes)? (5 Points)5. What is the degree of operating leverage under each scenario?(5 Points)

Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $2,955,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 5 times during the year, and its DSO was 36 days. Its annual cost of goods sold was $1,750,000. The firm had fixed assets totaling $540,000. Strickler's payables deferral period is 41 days. Assume a 365-day year. Do not round intermediate calculations.

1. Calculate Strickler's cash conversion cycle. Round your answer to two decimal places.

     days =

2. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answers to two decimal places.

   Total assets turnover:  ×

   ROA:   % =

3. Suppose Strickler's managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Strickler's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year? Round your answers to two decimal places.

   Cash conversion cycle:   days =

   Total assets turnover:    ×

   ROA:    % =

Pybus, Inc. is considering issuing bonds that will mature in 21 years with an annual coupon rate of 11 percent. Their par value will be ​$1000​, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds​ and, if it​ does, the yield to maturity on similar AA bonds is 7.5 percent. ​ However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A​ rating, the yield to maturity on similar A bonds is 8.5 percent. What will be the price of these bonds if they receive either an A or a AA​ rating?

In time 0, an investor takes a calendar spread by selling two-year European call option and buying three-year European call option. These two options have the same strike price of $80 and are for the same stock that pays no dividends. The two-year option sells for $5 and the three-year option sells for $7. Two years later, the stock price turns out to be $90. The risk-free rate is 2% per annum. What is the minimum of the profit from this strategy? (We assume that we sell the longer-term option in year two).

Your supervisor has asked you to evaluate the relative attractiveness of the stocks of two very similar chemical companies. Litchfield Chemical Corp. (LCC) and Aminochem Company (AOC). Both firms have a June 30 fiscal year end. You have compiled the data in Table 1 for this purpose. Use a 1-year time horizon and assume the following:

Real gross domestic product is expected to rise 5%;

S&P 500 expected total return of 20%;

U.S. Treasury bills yield 5%; and

30 year U.S. Treasury bonds yield 8%.

1. Calculate the value of the common stock of LCC and AOC using the constant growth dividend discount model. Show your work.                                

2. Calculate the expected return over the next year of the common stock of LCC and AOC using the capital asset pricing model, Show your work.                

3. Calculate the internal (implied, normalized, or sustainable) growth rate of LCC and AOC. Show your work.                                                     

4. Recommend LCC or AOC for investment. Justify your choice by using your answers to A, B, C and the information in Table 1.                                 

4. A project in Hong Kong costs Hong Kong dollar (HKD) 100,000 and produces cash flows of HKD 40,000 per year for four years. Gruner, a Swiss firm using Swiss franc (CHF), is interested in adopting this project. If this had been a domestic project, the discount rate would have been 14 percent, Forecasts of inflation rates over the next four years indicate inflation of 2.5 percent in Switzerland and 5 percent in Hong Kong. Spot CHFHKD is 6.2

a. What is the appropriate discount rate for HKD cash flows? Using this discount rate, calculate the project NPV in HKD.

b. Making appropriate assumptions and using data given in the problem, forecast future values of CHFHKD.

c. Estimate CHF cash flows, and calculate the project NPV in CHF. Are HKD and CHF project NPVs different?

                                     Fixed Rate                                      Floating Rate
Company A                         5.50% LIBOR + 1.05%
Company B                          6.75%                                         LIBOR + 1.75%
Assuming comparative advantage and the agree upon rate of 6.45%, after entering into an interest rate swap determine the cost of financing for Company A and Company B. Who are the main users of interest swaps and currency swaps?
6. A U.S. investor purchased stock in Toyota, the rate of return on the stock in yen was 8.65% and the yen appreciated by 2.34%, determine the exact total return to the investor.

5. (5 pts) Consider a 125,000 euro futures contract in which the current future price is $1.232 per euro. The initial margin requirement is $2,310 per contract, and the maintenance margin requirement is $2,100 per contract. You go short 10 contracts and meet all margin calls but do not withdraw any excess margin. Assume that on the first day, the contract is established at the settlement price, so there is no mark-to-market gain or loss on that day.

b. How much are your total gains or losses by the end of day 4?

Suppose you are expected to receive $5,000 per month, 10 years from now for 15 years. How much you would pay per month for 10 years if you are required to start payment today? (Assume interest rate i⁽¹²⁾ is 6.5%).

Thanks!

3. Explain the law of small numbers and how it impacts financial decisions.

1. Many of the concepts you have studied in finance rely implicitly on efficient markets, i.e., capital budgeting, the relationship between risk and return, asset allocation and even the rule that managers should try maximize shareholder wealth. However, there is a great deal of evidence over the last 30 years that markets may not be efficient and thus these concepts may not hold empirically. Take one idea from what you learned in behavioral finance use it to explain why markets may not be efficient.

4. Explain asymmetric loss aversions and how it impacts financial decisions.

If you invest today SR2,500 every year until the end of 20^th year at the rate of interest of 4.5% for the first 15 years and 5% thereafter, what is the value of your investment at the end of 25 years