Consider the information below which shows the rates at which firm X and firm Y are able to borrow in the fixed- and variable-rate debt markets. Prepare a fully labelled diagram to show the construction and cash flows of the direct interest rate swap. In your diagram, show which firm will initially borrow fixed-rate debt and which firm will borrow variable-rate debt. Assume the comparative advantage net differential is to be shared equally between the companies.

This will be a direct swap without an intermediary.

LIBOR rate 1.90800%

Good Morning Food, Inc. is using the profitability index (PI) when evaluating projects. You have to find the PI for the company’s project, assuming the company’s cost of capital is 12.05 percent. The initial outlay for the project is $374,333. The project will produce the following end-of-the-year after-tax cash inflows of

Year 1: $138,270

Year 2: $1,735

Year 3: $13,342

Year 4: $254,678

Round the answer to two decimal places.

Do you think it is possible and or wise for a company (or investor) to use different methods based on a company's position in their own life cycle? Is it fluid, meaning it can go back and forth depending on a company's position? explain

Project A requires an initial outlay at t = 0 of $1,000, and its cash flows are the same in Years 1 through 10. Its IRR is 15%, and its WACC is 8%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places. %

(the answer is not 2.947919%)

You are evaluating the performance of two portfolio managers, and you have gathered annual return data for the past decade:

1. For each manager, calculate (1) the average annual return, (2) the standard deviation of returns, and (3) the semi-deviation of returns. Do not round intermediate calculations. Round your answers to two decimal places.

   	Average annual return	Standard deviation of returns	Semi-deviation of returns
   Manager X	4.35 %	7.74%	? %
   Manager Y	4.35%	5.67%	? %

2. Assuming that the average annual risk-free rate during the 10-year sample period was 1.0%, calculate the Sharpe ratio for each portfolio. Based on these computations, which manager appears to have performed the best? Do not round intermediate calculations. Round your answers to three decimal places.

   Sharpe ratio (Manager X): 0.433

   Sharpe ratio (Manager Y): 0.591

3. Calculate the Sortino ratio for each portfolio, using the average risk-free rate as the minimum acceptable return threshold. Based on these computations, which manager appears to have performed the best? Do not round intermediate calculations. Round your answers to three decimal places.
   1. Sortino ratio (Manager X): ?

   2. Sortino ratio (Manager Y): ?

- We assume that the company you selected is considering a new project. The project has 8 years’ life. This project requires initial investment of $195 million to purchase land, construct building, and purchase equipment, and $15 million for shipping & installation fee. The fixed assets (Total of 195+15= $210 M) fall in the 7-year MACRS class. The salvage value of fixed assets is $38 million. The number of units of the new product expected to be sold in the first year is 880,000 and expected to grow at annual growth rate of 9%. The sales price is $266 per unit and the variable cost is $179 per unit in the first year, but they should be adjusted accordingly based on the estimated annualized inflation rate of 2.8%. The required net operating working capital (NOWC) foe each year is 15% of sales for that year. The company is in the 21% tax bracket. The project is assumed to have the same risk as the corporation you have chosen, so you should use the WACC you obtained from prior steps as the discount rate. Compute the depreciation basis and annual depreciation of the new project. (Please refer to table of 11A-2, page 496 for 16th edition). - Estimate annual cash flows of the project for all the 8 years. - Draw a time line of the cash flows.

The Dauten Toy Corporation uses an injection molding machine that was purchased prior to the new tax legislation. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining life. Its current book value is $2,400, and it can be sold for $2,500 at this time. Thus, the annual depreciation expense is $2,400/6 = $400 per year. If the old machine is not replaced, it can be sold for $500 at the end of its useful life.

Dauten is offered a replacement machine which has a cost of $9,000, an estimated useful life of 6 years, and an estimated salvage value of $800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase. The replacement machine would permit an output expansion, so sales would rise by $1,000 per year; even so, the new machine's much greater efficiency would cause operating expenses to decline by $1,500 per year. The new machine would require that inventories be increased by $2,000, but accounts payable would simultaneously increase by $500. Dauten's marginal federal-plus-state tax rate is 25%, and its WACC is 11%.

What is the NPV of the incremental cash flow stream? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent.
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Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $119,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $9,000. The company reports on a calendar year basis.

Required:
a-1. Prepare a complete depreciation schedule, beginning with the current year, using the straight-line method. (Assume that the half-year convention is used).

a-2. Prepare a complete depreciation schedule, beginning with the current year, using the 200 percent declining-balance method. (Assume that the half-year convention is used).

a-3. Prepare a complete depreciation schedule, beginning with the current year, using the 150 percent declining-balance, switching to straight-line when that maximizes the expense. (Assume that the half-year convention is used).

b. Which of the three methods computed in part a is most common for financial reporting purposes?

c. Assume that Swanson & Hiller sells the machine on December 31 of the fourth year for $29,500 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a.

Calculate the realized compound yield for a 10 percent bond with 20 years to maturity and an expected reinvestment rate of 8 percent.

You have $100,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. You goal is to create a portfolio that has an expected return of 13% and that has only 70% of the risk of the overall market. If X has an expected return of 31% and a beta of 1.8, Y has an expected return of 20% and a beta of 1.3, and the risk-free rate is 7%, how much money will you invest in Stock Y?

Listed below are the five major risks faced by bond investors. For each risk:

a. give a definition of the nature of risk
b. create a specific example of a situation that involves that risk
c. discuss how that risk is quantified
d, discuss how that risk can be reduced or eliminated

The risks that you should consider are as follows:
1. Credit Risk
2. Interest Rate Risk
3. Pre-Payment Risk
4. Optionality Risk
5. Inflation Risk

Calculate the price of a 10 percent coupon bond with eight years to maturity, given an appropriate discount rate of 12 percent, using both annual and semiannual discounting.

Victor is spending HKD300,000 per year and is quite satisfied with the present living lifestyle and standard. He is now 38 and plans to retire at age 60. He believes he can live up to age 85. He wants to keep 80% of the current living lifestyle and standard after retirement. Victor would like all the money for retirement to be ready when he retires. He also would like the retirement money for spending in a year to be ready at the beginning of every year. He plans to start saving for the retirement reserve with an equity unit trust fund of 10% annual rate of return. Average expected annual rate of return during his retirement period is 6%. Assume the average long term inflation is 4% p.a.

a. What is the required annual expenditure at the time when Victor retires at age 60?

b. What is the total amount of money required for 25 years after Victor’s retirement? (at the beginning of age 60)

c. How much should Victor save at the beginning of each month from now on until the age of 60 in order to meet the required amount at (c)?

A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:

The company's WACC is 9.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.

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