You work as a financial consultant for a major national company. One of your clients, Kay, comes in to talk to you about a new idea. She is interested in quitting her management job at a large corporation where she has long hours and a lot of stress. She would like to take a position with a much smaller not-for-profit company, focusing on an issue she has been passionate about for years. Unfortunately, this not-for-profit cannot pay her even half of what she makes now. She has figured out that if she can get rid of her $40,000 in student loans (which she can currently pay monthly but could not if she took the nonprofit job), she could afford to take the job and maintain a decent lifestyle. She has come to you to discuss declaring bankruptcy to get rid of her student loans so she can change jobs. Analyze her ability to do this.

List some enterprise fund listed in your city's CAFR. What are the fees associated with fund? is the funds self supporting?

Which of the following actions do not lead to agency costs and explain why?

I. Foregoing an investment opportunity which would add to the market value of the owners’ equity.

II. Paying a dividend to each of the existing shareholders.

III. Purchasing new equipment which increases the value of each share of stock.

IV. Hiring outside auditors to verify the accuracy of the company financial statements

Which form of business organization(s) can potentially face agency problems and which faces the greatest agency problems? Please consider each of the following business organizations and explain why they may or may not face agency problem.

I. Sole proprietorship

II. Partnership

III. Corporation

If a tax were put on stock market transactions, it would probably substantially reduce trading. What would you expect it to do to volatility of individual stocks and stock indices?

Please link any articles you have used to help you answer this question.

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.2%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 12% 33% Bond fund (B) 5% 26% The correlation between the fund returns is 0.0308. What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

Zane just graduated from college and us thrilled to explore his new life and all the excitement that comes with it. Just now, Zane received communication from a company to whom he owes $100,000 in student loans. The information in the communication states that Zane agreed on an annual interest rate of 7.99% that is compounded annually. Also, Zane is allowed to make one fixed payment at the end of each year for the next 10 years.

Zane is shocked by this information because it has been 4 years since he signed that agreement but he is not dishearted because he received another email from a company he interviewed with that he has been hired at an above average starting salary. Zane is a planner and he pulls up his old financial calculator to figure out how he is going to be debt free very soon.

Although the loan asks for payment at the end of each year, Zane believes that he should not wait all year long and instead should save every month. His expected salary after taxes is $5,000 per month. He has a savings account at a credit union that is expected to pay 3% interest on savings that is compounded monthly.

In order to save the annual payment, Zane has decided to deposit an equal amount of money from his paycheck to his savings account. What should be the monthly amount for Zane to have accumulated the annual payment? Show steps on how you got answer.

Discuss 2 of the 4 elements of an Insurable Risk (peril). Choose one of the 4 elements, and describe how, if it is missing, an manager might deal with that risk (peril).

Question 1   

Mel Meyers International Inc. has a series of $1,000 par value bonds outstanding. Each bond pays interest quarterly and carries a coupon rate of 8%. Some bonds are due in 6 years while others are due in 10 years.

Required:

1. If the required rate of return on bonds is 10%, what is the current price of the bonds with 6 years to maturity?
2. If the required rate of return on bonds is 4%, what is the current price of the bonds with 10 years to maturity?
3. Briefly but concisely explain the results of your calculations in part (A) and (B) above.  

Question 2

What options do small businesses have for raising capital? How does small business cost of capital compare to the cost of capital for a large business? Briefly and concisely explain.

Discuss the meaning of Risk Management. Identify and briefly describe the 4 basic techniques available to the risk manager for dealing with pure risks and give an example of each.

Pirtucon Co. is considering a three-year project that will require an initial investment of $44,000. If market demand is strong, Pirtucon Co. thinks that the project will generate cash flows of $28,500 per year. However, if market demand is weak, the company believes that the project will generate cash flows of only $1,500 per year. The company thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak.

If the company uses a project cost of capital of 14%, what will be the expected net present value (NPV) of this project?

-$9,176

-$11,011

-$7,341

-$8,717

Pirtucon Co. has the option to delay starting this project for one year so that analysts can gather more information about whether demand will be strong or weak. If the company chooses to delay the project, it will have to give up a year of cash flows, because the project will then be only a two-year project. However, the company will know for certain if the market demand will be strong or weak before deciding to invest in it.

What will be the expected NPV if Pirtucon Co. delays starting the project?

$22,167

$1,092

$2,570

$1,285

What is the value of Pirtucon Co.’s option to delay the start of the project?     

Discuss the major risks that a business may face, and at least one peril that might give rise to a loss for each.

What value do profitability ratios bring to stakeholders? What are some of the ratios included in that category?

Provide John  with financial advice on which option has the potential to yield the highest monetary value. Support your rational with calculations using time value of money and comment on the risk return relationship for each option, assume interest rate on savings is 4% and is compounded semi-annually.

John Samuel is a 55-year old accountant who works at A-accounting who is about to retire. He has the following decision to make:

Option A – Select a lump sum gratuity payment of $120,000 with a reduced pension of $1,750 per month.

Option B – Select a monthly pension of $3,300 with no lump sum gratuity payment.

In addition, John has a loan of $72,000 with loan payments of $1,200 per month for the next five years.

Problem 2

Halcyon Lines is considering the purchase of a new bulk carrier for $10 million. The forecasted revenues are $6 million a year and the operating costs are $4 million a year. A major refit costing $3 million will be required after both the fifth and the tenth years. After 15 years, the ship is expected to be sold for scrap for $2 million. If the discount rate is 8%, what is the ship’s NPV?