1a.Suppose that you pay $100,000,000 dollars for a factory that has an expected life of eight years and no salvage value. If the tax rate is 37.5%, and your EBITDA will be $20,000,000 per year for the next three years, and $36,000,000 for the following five years, what is your IRR? (Hint: EBITDA is the EBIT before depreciation and amortization expenses, which are non-cash.)

1b. For problem above suppose there is a $50,000,000 cash payment that you must make to tear down and clean up the factory in year 9, what’s the IRR?

A 30-year maturity bond making annual coupon payments with a coupon rate of 8% has duration of 11.37 years and convexity of 187.81. The bond currently sells at a yield to maturity of 9%.

a. Find the price of the bond if its yield to maturity falls to 8%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

c. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

d-1. What is the percent error for each rule? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

d-2. What do you conclude about the accuracy of the two rules?

• The duration-with-convexity rule provides more accurate approximations to the true change in price.

• The duration rule provides more accurate approximations to the true change in price.

e-1. Find the price of the bond if its yield to maturity increases to 10%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

e-2. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

e-3. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

e-4. What is the percent error for each rule? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

e-5. Are your conclusions about the accuracy of the two rules consistent with parts (a) – (d)?

• Yes

• No

The capital structure of Vermont Machinery Ltd. (VM) contains the following items. Equity: 2,000,000 ordinary shares, with face value of $1 per share. VM’s ordinary shares are currently trading at $5 per share. The company’s next dividend is estimated to be $0.50. This dividend is expected to grow at 3% per annum forever. The current market required rate of return of the shares is calculated as 13%.
Long-term bonds: 10,000 bonds maturing in 5 years, with a face value of $1000 per bond. The bond has a coupon rate of 6%, which is paid semi-annually. The current market price of a bond is $918.89 and the yield to maturity (the implied market required rate of return) of the bond is 8% per annum.
Preference share: 500,000 preference shares, with a face value $1 per share and paying a 12.5% preference dividend on the face value. Currently, VM’s preference share is trading at $1.25 per share.
Assume VM’s corporate tax rate is 30%. Calculate VM’s after-tax weighted average cost of capital (WACC)

The MoMi Corporation’s cash flow from operations before interest and taxes was $2.1 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 15% of pretax cash flow each year. The tax rate is 21%. Depreciation was $270,000 in the year just ended and is expected to grow at the same rate as the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 14% per year, and the firm currently has debt of $4 million outstanding. Use the free cash flow approach to calculate the value of the firm and the firm’s equity. (Enter your answer in dollars not in millions.)

New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $880,000, and it would cost another $19,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $637,000. The machine would require an increase in net working capital (inventory) of $18,500. The sprayer would not change revenues, but it is expected to save the firm $482,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%.

1. What is the Year 0 net cash flow?
   $
2. 
   
3. 
   
4. 
   
5. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.

   Year 1	$
   Year 2	$
   Year 3	$

6. 
   
7. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $
8. 
   
9. 
   
10. 
    
11. If the project's cost of capital is 11 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.
    $
    
    Should the machine be purchased?
    -Select-Yes or No

Cost of common stock equity   Ross Textiles wishes to measure its cost of common stock equity. The​ firm's stock is currently selling for ​$49.39. The firm just recently paid a dividend of ​$3.99. The firm has been increasing dividends regularly. Five years​ ago, the dividend was just ​$3.04. After underpricing and flotation​ costs, the firm expects to net ​$43.96 per share on a new issue. a.  Determine average annual dividend growth rate over the past 5 years. Using that growth​ rate, what dividend would you expect the company to pay next​ year? b. Determine the net​ proceeds, Nn​, that the firm will actually receive. c.  Using the​ constant-growth valuation​ model, determine the required return on the​ company's stock, r Subscript s​, which should equal the cost of retained​ earnings, r Subscript r. d.  Using the​ constant-growth valuation​ model, determine the cost of new common​ stock, r Subscript n. a.  The average annual dividend growth rate over the past 5 years is?

Compute the YTM:

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of 0.4, and a tax rate of 30 percent. Assume a risk-free rate of 5 percent and a market risk premium of 7 percent. Lauryn’s Doll Co. had EBIT last year of $46 million, which is net of a depreciation expense of $4.6 million. In addition, Lauryn's made $6.25 million in capital expenditures and increased net working capital by $3.6 million. Assume the FCF is expected to grow at a rate of 3 percent into perpetuity. What is the value of the firm?

How much should you deposit into a bank account annually in order to buy a property that you expect to cost $231400 in 4 years if the account pays 3% annual interest? You are able to deposit $1355 quarterly into a bank account that is paying 14% annually. How much will you be able to accumulate after 8 years? (Express your answer as a positive number and to two decimal places.)

What is the present value of a cash flow stream of $1,000 per year annually for 15 years that then grows at 2.0 percent per year forever when the discount rate is 8 percent? (Round intermediate calculations and final answer to 2 decimal places.)

consider the following two mutually exclusive projects

what is the cross over rate for these two projects

(Option leverage; straddle payoffs; replication; % margin) In the one-period binomial model, the current stock price of CAT (Caterpillar) is $90. Robert expects that in one year the stock price of CAT will be either $108 (up move) or $75 (down move). The exercise price of one-year European call (or put) option of CAT=$100 and risk-free rate r=2% per annum. Robert would like to construct a portfolio with the stock and cash to replicate the payoff of 1,000 units of “straddle” of CAT, where one unit of straddle is the combination of long one call option and long one put option with the same strike price.

(a) What are the gross payoffs ($) of 1,000 units of CAT straddle in the up and down move, respectively?

(b) How many shares of CAT does Robert need to buy/short now?

(c) How much money does Robert need borrow/save now?

(d) Calculate the percentage margin.

[Note: percentage margin=(equity)/(short position) or percentage margin=(equity)/(value of stock)]

(e) Calculate the current price of CAT straddle (per unit) in the one-period binomial setting.

​Beryl's Iced Tea currently rents a bottling machine for $ 54 comma 000 per​ year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two​ options: a. Purchase the machine it is currently renting for $ 160 comma 000. This machine will require $ 24 comma 000 per year in ongoing maintenance expenses. b. Purchase a​ new, more advanced machine for $ 265 comma 000. This machine will require $ 20 comma 000 per year in ongoing maintenance expenses and will lower bottling costs by $ 11 comma 000 per year.​ Also, $ 40 comma 000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 7 % per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each​ year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the​ straight-line method over seven years and that they have a​ 10-year life with a negligible salvage value. The marginal corporate tax rate is 35 %. Should​ Beryl's Iced Tea continue to​ rent, purchase its current​ machine, or purchase the advanced​ machine? To make this​ decision, calculate the NPV of the FCF associated with each alternative.

Q1: what does the efficient frontier represents?

Q2: how do we estimate the return and standard deviation of a newly built portfolio from analyzing the stocks in that portfolio?

Q3: in the regression equation, what is meant by a regression that has an R-square with 0.95 and how does it compare with a regression with a R-square of 0.30?

Q4: why do we use adjusted beta?

Q5: what is the information ratio and why do we use it?

If a bank has a Liquidity Coverage Ratio of 104%, and HQLA of $45,650,000, how much does the bank expect to run off in cash flow during the next 30 days?

Ans: ________________________

A bank has an NSFR of 178%. How much more stable capital does the bank have compared to its RSF, if the required amount is $1.673 billion?   Ans: _______________________________