The 1-week call options on the Alibaba stock with strike prices of $185, $190, and $195 are $10, $7, and $5.5, respectively. An investor longs a butterfly spread using these three options. Specifically, he longs 100 call options with the strike price $185, shorts 200 call options with the strike price $190, and longs 100 call options with the strike price 195. What is the investor's maximum gain from this strategy?

(a). distinguish between equity analysis and credit analysis

b). discuss the importance of conceptual framework in financial analysis and the qualitative characteristics of financial statements information as described under the conceptual framework.

c). discuss the forces that push managers to manipulate earnings results?

d). discuss the two major analysis questions when analysing receivables

e). what qestion are important to a financial analyst when reviewing the statement of cashflows ?

f). elaborate the usefulness of the dupont model in financial analysis.

Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply:

1. The machinery falls into the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.)
2. Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance.
3. The firm's tax rate is 25%.
4. The loan would have an interest rate of 12%. It would be non amortizing, with only interest paid at the end of each year for four years and the principal repaid at Year 4.
5. The lease terms call for $400,000 payments at the end of each of the next 4 years.
6. Big Sky Mining has no use for the machine beyond the expiration of the lease, and the machine has an estimated residual value of $200,000 at the end of the 4th year.

1. What is the cost of owning? Enter your answer as a positive value. Do not round intermediate calculations. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar.

   $   ?????

2. What is the cost of leasing? Enter your answer as a positive value. Do not round intermediate calculations. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar.

   $   ?????

3. What is the NAL of the lease? Do not round intermediate calculations. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar.

   $ ????

The University of Kentucky Builds with Bonds

Every year, hundreds of colleges around the country build new buildings. Where do most schools get the money for these expensive projects? From long-term bonds.   

The University of Kentucky (UK) has issued “revenue” bonds to build buildings on the 23,000 student Lexington campus, and on 14 community colleges throughout the state. These bonds pledge the school’s revenues as collateral to guarantee payment of the bonds. At one time the outstanding debt on the Lexington campus buildings was $137 million. The total debt on the community college buildings equaled $121 million. The bonds generally have maturities ranging from 10 to 20 years.

Additional “guarantees” for bond purchasers are the ratings given the bonds by professional rating agencies.   Their bonds are rated “AA-“ by Standard & Poor’s Corporation, which is well above investment grade. Thee is always a very good market for the bonds.

People in Kentucky identify very closely with the university. Even though the bonds are rated “AA-” they trade at AAA (the top bond rating) because they are so easy to sell.  

One advantage for investors: the bonds’ interest revenue id exempt from federal income tax and from state tax for in-state investors. So, an issue offering 6% is the equivalent of 10% to those individuals in the top tax bracket. Many investors feel very confident in buying the bonds, because it is inconceivable to them that there would ever e a default.  

1) The University of Kentucky’s bonds are rated “AA-“ by Standard & Poor’s and A1 by Moody’s Investor Service. Why is it important to the University of Kentucky that its bonds have a high bond rating?

2) Why does the state use bonds to finance the buildings rather than taking the funds out of general revenues?

3) Explain the meaning to the tax-exempt status of the University of Kentucky bonds. What does it mean to say that “a recent issue offering 6% is the equivalent of 10% to those individuals in the top tax bracket?”

Tyson Corporation is considering investing in a project that will allow them to expand their sales in the new value add snack market of multiple countries. The firm needs an estimate of its cost of capital to evaluate this proposed project. The common stack is currently trading at $25.00 per share. The historical dividend record of the firm over the past 5 years shows payment of 1.4, 1.5, 1.65, 1.70, 1/75. The firm has a market beta of 1..4. The observed market risk premium is 6%with a risk-free rate of 3.2% provided by the long-term governemnt bonds. The firm also has an outstanding issue of corporate bond carrying a coupon rate of 5%, paying annual interest with a maturity of 25 years. The bond is trading in the market for $900. The firm is in a marginal tax rate of 20%. The firm also has an issue of preferred stock. The current market price of the preferred is $40/share and pays $4.00 per share dividend.

Compute the ost of equity using the dividend discount model as well as the CAPM. Estimate the cost of equity for the firm as an average of the two.

Compute the after tax cost of debt

compute the cost of preferred stock

If

Equity is 90000

Debt is 45000

preferred stack is 15000

what is the WACC

Assume that it is 2008. You purchased CSH stock for ​$33 one year ago and it is now selling for ​$44. The company has announced that it plans a ​$11 special dividend. You are considering whether to sell the stock​ now or wait to receive the dividend and then sell.

a. Assuming 2008 tax​ rates, what​ ex-dividend price of CSH will make you indifferent between selling now and​ waiting?

b. Suppose the capital gains tax rate is 20 % and the dividend tax rate is 38 %​, what​ ex-dividend price would make you indifferent​ now?

a. Assuming 2008 tax​ rates, what​ ex-dividend price of CSH will make you indifferent between selling now and​ waiting?  

In​ 2008, the capital gains tax rate is 15 % and the dividend tax rate is 15 %. The tax on a ​$11 capital gain is ​$​     , and the tax on a ​$11 special dividend is ​$     . The​ after-tax income for both will be ​$    . ​(Round to the nearest​ cent.)

Brown Industries has a debt-equity ratio of 1.2. Its WACC is 14 percent, and its cost of debt is 5 percent. There is no corporate tax. a. What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What would the cost of equity be if the debt-equity ratio were 2? (Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32.) b-2. What would the cost of equity be if the debt-equity ratio were .6? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-3. What would the cost of equity be if the debt-equity ratio were zero? (Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32.)

“Bankrupt” Corporation is in a deep financial crisis. You are one of the financial avengers “Bankrupt” is desperately seeking help from. CEO of the company informed you that he is considering the two risky projects “Thanos” and “Loki” to protect the firm from financial collapse. Both projects have similar risk characteristics. Bankrupt’s WACC is 11%. The initial investments for both the projects are $200 million. Cashflow from the projects are as follows;

Year           1                2                3                4

Thanos       10M           60M           80M           160M

Loki           70M           50M           20M           160M

Now, your job is to explain the following questions in great detail so that the CEO understands your plans to protect the firm.

1. Explain the concept of capital budgeting decisions. How it is different from the firm’s investing decisions.
2. Explain the concepts of independent and mutually exclusive projects
3. What is NPV -explain with an example?
4. Calculate NPV for both the projects and show the steps
5. Explain your decision when Thanos and Loki are mutually exclusive, and when they are independent.
6. WACC has increased to 15%. What change you will see in NPV?
7. What is IRR and how it is different from NPV? What is the IRR for Thanos and Loki? Based on IRR which project you should accept?
8. How is IRR identical to Bond’s YTM?
9. WACC has increased to 15%. What change you will see in IRR? Is it good for the firm?
10. What is the reinvestment assumption for NPV and IRR? Why NPV is better than IRR?
11. Find the MIRR for both projects and explain the difference with IRR.
12. Is MIRR a better measure than NPV? Why and why not?
13. Calculate the pay-back and discounted pay-back for both the project. Discuss the differences between the two methods.

Differences between the features and cost of forward contracts and options?

Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $2 million, 50 earth stations are produced and sold each year, profits total $600,000, and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $5 million to assets and $450,000 to fixed operating costs. This change will reduce variable costs per unit by $10,000 and increase output by 23 units. However, the sales price on all units must be lowered to $87,000 to permit sales of the additional output. The firm has tax loss carryforwards that render its tax rate zero, its cost of equity is 16%, and it uses no debt.

What is the incremental profit?
$  
To get a rough idea of the project's profitability, what is the project's expected rate of return for the next year (defined as the incremental profit divided by the investment)? Round your answer to two decimal places.
%

Blinkeria is considering introducing a new line of hand scanners that can be used to copy material and then download it into a personal computer. These scanners are expected to sell for an average price of $96 ​each, and the company analysts performing the analysis expect that the firm can sell 103,000 units per year at this price for a period of five​ years, after which time they expect demand for the product to end as a result of new technology. In​ addition, variable costs are expected to be $19 per unit and fixed​ costs, not including​ depreciation, are forecast to be $1,030,000 per year. To manufacture this​ product, Blinkeria will need to buy a computerized production machine for $10.3 million that has no residual or salvage​ value, and will have an expected life of five years. In​ addition, the firm expects it will have to invest an additional $309,000 in working capital to support the new business. Other pertinent information concerning the business venture is provided here:

a.  Calculate the​ project's NPV.

b.  Determine the sensitivity of the​ project's NPV to​ a(n) 12 percent decrease in the number of units sold.

c.  Determine the sensitivity of the​ project's NPV to​ a(n) 12 percent decrease in the price per unit.

d.  Determine the sensitivity of the​ project's NPV to​ a(n) 12 percent increase in the variable cost per unit.

e.  Determine the sensitivity of the​ project's NPV to​ a(n) 12 percent increase in the annual fixed operating costs.

f.  Use scenario analysis to evaluate the​ project's NPV under​ worst- and​ best-case scenarios for the​ project's value drivers. The values for the expected or​ base-case along with the​ worst- and​ best-case scenarios are listed​ here:

Please include E. and F. as well Thank you.

What are intellectual property rights? And why are they important? Why should multinational enterprises and investors pay attention to property rights protection in developing countries such as China?

What strategies do multinational enterprises use to reduce or eliminate their US tax liability? Is it fair, moral, and ethical to attempt to pay as little tax as possible? Or should everybody pay their "fair share?"