Explain all the recipe you have to use in order to be able to
maximize expected return given a predefined risk?
In: Finance
Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an
expense ratio of 0.60%. Economy Fund charges a front-end load of
2%, but has no 12b-1 fee and an expense ratio of 0.40%. Assume the
rate of return on both funds’ portfolios (before any fees) is 5%
per year.
a. How much will an investment of $100 in each
fund grow to after 1 year? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
Loaded-up Fund:
Economy Fund:
b. How much will an investment of $100 in each
fund grow to after 2 years? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
Loaded-up Fund:
Economy Fund:
c. How much will an investment of $100 in each
fund grow to after 11 years? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
Loaded-up Fund:
Economy Fund:
In: Finance
City Street Fund has a portfolio of $490 million and liabilities
of $10 million.
a. If there are 30 million shares outstanding,
what is the net asset value?
Net Asset Value:
b-1. If a large investor redeems 1 million shares,
what happens to the portfolio value? (Enter your answer in
millions.)
Portfolio value ___________ to _________ million
b-2. If a large investor redeems 1 million shares,
what happens to shares outstanding? (Enter your answer in
millions.)
Portfolio value ___________ to _________ million
b-3. If a large investor redeems 1 million shares,
what is the net asset value?
Net Asset Value:
In: Finance
In: Finance
You are trying to decide whether to keep your current car or buy
a new car. If you keep your current car you will pay $400 per month
(starting next month) on average for maintenance, gas, property tax
and insurance. You will make these payments for 10 years.
Alternatively, you can buy a new car and pay $28,000 today and $350
per month (starting next month) on average for maintenance, gas,
property tax and insurance. You will make these payments for for 10
years.
If your investments earn 5% APR (compounded monthly), which
alternative is cheaper in present value terms and by how much?
Group of answer choices
keep existing car saves $22,608
get new car, saves $24,515
keep existing car saves $24,450
keep existing car saves $23,286
In: Finance
Given the following information, forecast the taxes to be paid in 2019. 2018 Income Statement Amounts: Sales 30,000 COGS 13,650 Selling Expenses 3,000 Depreciation 2,250 Fixed Expenses 3,000 EBIT 8,100 Taxes (40%) 3,240 Net Income 4,860 Sales are forecast to grow to $37,500. COGS & Selling Expenses are expected to change at the same rate as sales. Depreciation and Fixed Expenses are expected to remain the same. The tax rate will remain at 40%.
In: Finance
Ben Halls is trying to decide whether to lease or purchase a new car costing $18,000. If he leases, he’ll have to pay a $600 security deposit and monthly payments of $450 over the 36-month term of the closed-end lease. Ben could earn 1% on the amount of any down payment or security deposit. On the other hand, if he buys the car then he’ll have to make a $2,400 down payment and will finance the balance with a 36-month loan with a 4% interest rate; he’ll also have to pay a 6 percent sales tax ($1,080) on the purchase price, and he expects the car to have a residual value of $6,500 at the end of 3 years. Ben can earn 4 percent interest on his savings.
Find the total cost of both the lease and the purchase and then recommend the best strategy for Ben.
In: Finance
|
Project A |
||
|
Year |
r |
Cash Flow |
|
Year 0 |
-$8,000 |
|
|
Year 1 |
5% |
$5,000 |
|
Year 2 |
5% |
$5,000 |
|
Project B |
||
|
Year |
r |
Cash Flow |
|
Year 0 |
-$1,000 |
|
|
Year 1 |
5% |
$2,411.90 |
You find that the NPV of both projects is $1,297.
In: Finance
|
As discussed in the text, in the absence of market imperfections and tax effects, we would expect the share price to decline by the amount of the dividend payment when the stock goes ex dividend. Once we consider the role of taxes, however, this is not necessarily true. One model has been proposed that incorporates tax effects into determining the ex-dividend price:1 |
| (P0 – PX) / D = (1 – TP) / (1 – TG) |
|
where P0 is the price just before the stock goes ex, PX is the ex-dividend share price, Dis the amount of the dividend per share, TP is the relevant marginal personal tax rate on dividends, and TG is the effective marginal tax rate on capital gains. |
| a. |
If TP = TG = 0, how much will the share price fall when the stock goes ex? |
|
| b. |
If TP = 23 percent and TG = 0, how much will the share price fall? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) |
| Share price | D |
| c. |
If TP = 23 percent and TG = 46 percent, how much will the share price fall? (Do not round intermediate calculations. Round your answer to 4 decimal places, e.g., 32.1616.) |
| Share price | D |
| d. |
Suppose the only owners of stock are corporations. Recall that corporations get at least a 70 percent exemption from taxation on the dividend income they receive, but they do not get such an exemption on capital gains. If the corporation’s income and capital gains tax rates are both 40 percent, what does this model predict the ex-dividend share price will be? (Do not round intermediate calculations. Round your answer to 4 decimal places, e.g., 32.1616.) |
| Share price | D |
| 1N. Elton and M. Gruber, “Marginal Stockholder Tax Rates and the Clientele Effect,” Review of Economics and Statistics 52 (February 1970). |
In: Finance
|
The Day Company and the Knight Company are identical in every respect except that Day is not levered. Financial information for the two firms appears in the following table. All earnings streams are perpetuities, and neither firm pays taxes. Both firms distribute all earnings available to common stockholders immediately. |
| Day | Knight | ||||
| Projected operating income | $ | 950,000 | $ | 950,000 | |
| Year-end interest on debt | − | $ | 105,000 | ||
| Market value of stock | $ | 4,000,000 | $ | 2,500,000 | |
| Market value of debt | − | $ | 1,750,000 | ||
| a-1 |
What will the annual cash flow be to an investor who purchases 10 percent of Knight's equity? (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.) |
| Cash flow | $ |
| a-2 |
What is the annual net cash flow to the investor if 10 percent of Day's equity is purchased instead? Assume that borrowing occurs so that the net initial investment in each company is equal. The interest rate on debt is 6 percent per year. (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.) |
| Net cash flow | $ |
| b. | Given the two investment strategies in (a), which will investors choose? |
In: Finance
|
Braxton Corp. has no debt but can borrow at 7.3 percent. The firm’s WACC is currently 9.1 percent, and the tax rate is 35 percent. |
| a. |
What is the company’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Cost of equity | % |
| b. |
If the firm converts to 30 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Cost of equity | % |
| c. |
If the firm converts to 60 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Cost of equity | % |
| d-1 |
If the firm converts to 30 percent debt, what is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| WACC | % |
| d-2 |
If the firm converts to 60 percent debt, what is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| WACC | % |
In: Finance
What is the present value of a series of 41 quarterly deposits (starting at quarter 1) when the first deposit is $500 and the deposits increase by $31 each quarter starting with the second quarter? The nominal annual interest rate is 10% and is compounded weekly.
In: Finance
What are the different ways to calculate the cost of equity? Provide examples of when it is appropriate to use each.
In: Finance
Suppose you pay $100, 000 now for a piece of equipment which earns you $50, 000 a year for the next 4 years. At the end of year 4, you can resell the piece of equipment for $30, 000. (a) What is the internal rate of return on this investment? (b) Suppose that you also have to pay $10, 000 in year 2 for a repair. What is the internal rate of return now?
In: Finance
Many European countries have laws that limit the times and number of hours that employees may work. These laws are much weaker in the US, China, and many other countries. How will these laws affect ratios such as the Total Asset Turnover and the Fixed Asset Turnover? How will these laws influence the desire of manufacturing intensive companies to locate in Europe vs. China or the USA? During the development of the personal computer industry, Dell moved quickly to a just-in-time manufacturing model while competitors like Compaq did not. How would this affect the Inventory Turnover ratio and the competitiveness of Dell vs. Compaq?
In: Finance