Why do you think everybody says “Beta is dead"?

Please write in your own words.

You are analyzing the after-tax cost of debt for a firm. You know that the firm’s 12-year maturity, 13.50 percent semiannual coupon bonds are selling at a price of $1,164.40. These bonds are the only debt outstanding for the firm.

What is the current YTM of the bonds? (Round final answer to 2 decimal places, e.g. 15.25%.)

What is the after-tax cost of debt for this firm if it has a marginal tax rate of 34 percent? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

What is the current YTM of the bonds and after-tax cost of debt for this firm if the bonds are selling at par? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answers to 2 decimal places, e.g. 15.25%.)

13.2 Which is easier to calculate directly, the expected rate of return on the assets of a firm or the expected rate of return on the firm's debt and equity? Assume that you are an outsider to the firm.

13.4 Your friend has recently told you that the federal government effectively subsidizes the use of debt financing (vs. equity financing) for corporations. Do you agree with that statement? Explain.

13.10 Your boss just finished computing your firm's weighted average cost of capital. He is relieved because he says that he can now use that cost of capital to evaluate all projects that the firm is considering for the next four years. Evaluate that statement.

Royal Minty of Britain has purchased 20,000 ounces of silver from Silver Products at US$8.30, payable in 180 days. The current spot rate is 1.8127 ($US/£) and the 180-day forward is 1.7863. The CEO at Royal Minty suggests that the spot rate in six months time will be 1.7915.

Interest rates in Britain are currently 4.70 percent for 180 days and 1.15 percent in the United States.

a-1. Calculate the receipts if Royal Minty takes a chance on the spot rate. (Round the final answer to the nearest whole pound.)

Receipts           £

a-2. Calculate the receipts if Royal Minty books a forward contract. (Round the final answer to the nearest whole pound.)

Receipts           £

a-3. Calculate the receipts if Royal Minty buys a money market hedge. (Round intermediate calculations and the final answer to the nearest whole pound.)

Receipts           £   

A.
which of the following statements is correct? 1.possible sources of market or none diversifiable risk include inflation and commodity price changes, changes in currency exchange rates, and fluctuations in interest rates
2.the practice of a diversification can effectively reduce and investors company-specific risk
3. non-systematic risk reflects the risk that remains after an investor has diversified his or her portfolio

B
the phenomena and behavior discussed above are based on the assumption that the majority of investors are risk-averse. according to the concept of risk aversion...
1.an investor will assess the riskiness of a security and then determine his or her appropriate rate of return or a risk-averse investor will prefer an investment that offers a 7% return with a standard deviation of 2% on an alternative investment that offers 7% return with a standard deviation of 4%

C.
which statement is correct
1. .the addition of an asset to a portfolio, when the correlation coefficient between the assets and the portfolio's return is -1, will increase the riskiness of the portfolio
2.. it is theoretically possible to create a portfolio that offers a positive return and whose standard deviation is 0
3. the addition of an asset to a portfolio, when the correlation coefficient between the assets and the portfolio's returns is +1, will reduce the riskiness of the portfolio
4. it is theoretically impossible to create a portfolio that offers a positive return and a standard deviation of 0

D. how is it possible that an asset held in a portfolio can produce less total risk than the same asset held in isolation?

1. it is not possible for a portfolio to exhibit less total risk than the sum of the riskiness exhibited but each of the assets in the portfolio

2.when an asset is held as part of a portfolio it is possible that the pattern of variation in its returns may be offset and averaged out by another asset in the portfolio this would reduce the total variation of risk exhibited by the portfolio even though the behavior of the assets returns did not change

The following spot and forward rates for the euro ($/euro) were reported:

a-1. Was the euro selling at a discount or premium in the forward market at 30 days.

• Discount

• Premium

a-2. Was the euro selling at a discount or premium in the forward market at 90 days.

• Premium

• Discount

a-3. Was the euro selling at a discount or premium in the forward market at 180 days.

• Premium

• Discount

b. What was the 30-day forward premium (or discount)? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

30-day forward premium/discount            %

c. What was the 180-day forward premium (or discount)? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Negative answer should be indicated by a minus sign.)

180-day forward premium/discount            %

d. Suppose you executed a 90-day forward contract to exchange 280,000 euros into Canadian dollars. How many dollars would you get 90 days hence?

Dollars for euros francs            $

e. Assume a French bank entered into a 180-day forward contract with TD Bank to buy $280,000. How many euros will the French bank deliver in six months to get the Canadian dollars? (Do not round intermediate calculations. Round the final answer to the nearest whole dollar.)

Euros francs for dollars          €

B&B Construction can construct a new warehouse for 1,156,181 dollars, use it for 30 years and then sell it for 1,249,096 dollars (due to property appreciation). Or, this company can lease an equivalent building for 313,711 dollars per year for 30 years. What is the annual worth of the LEAST costly option if the MARR is 18% per year, compounded annually. (Hint: Check your signs!)

Problem 18-14 Beta and Leverage

Problem 18-5 Beta and Leverage

Consider a project with an initial investment of $60,000, a 6 year usefule life (and study period), and a $10,000 salvage value. You expect an annual net revenue of $15,000 (before tax), a MARR before tax of 15.3%, and an effective tax rate of 35%. The capital equipment is to be depreciated using MACRS GDS and a 3 year class life. Develop the after-tax cash flows and draw the cash flow diagram

1. Given the data below, explain the distribution of weights for every portfolio? For example, the Eq-Wtd portfolio allocates 20% weights to all five asset classes because it is an equally-weighted portfolio.

The Rustic Welt Company is considering launching a new product. The new equipment costs $9 million and falls under straight line depreciation. The depreciation rate will be 10% each year for the next 10 years. The sale price is $8 per welt. The variable costs is a welt to $4 per welt. However, as the following table shows, there is some uncertainty about both the future number of unit sold:

a. calculate the NPV for the expected case

b. Conduct a sensitivity analysis assuming a discount rate of 12%. Rustic does not pay taxes and there is no change in NWC.