Wii Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game either as a traditional board game or as an interactive DVD, but not both. Consider the following cash flows of the two mutually exclusive projects for the company. Assume the discount rate is 9 percent. Year Board Game DVD 0 –$ 800 –$ 1,900 1 610 1,350 2 500 950 3 130 400

a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) d. What is the incremental IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

1.How does Economic exposure to exchange rate movements affect the capital budgeting of a firm? Provide an example?

2a. Give an example of how a firm might be affected by translation exposure

2b. Give an example of how a firm might be affected by transaction exposure.

3.

When the dollar strengthens, the reported consolidated earnings of U.S.-based MNCs are ____ affected by translation exposure. When the dollar weakens, the reported consolidated earnings are ____ affected.

a. favorably; favorably affected but by a smaller degree

b. favorably; favorably affected by a higher degree

c. unfavorably; favorably affected

d. favorably; unfavorably affected

4.

Dubas Co. is a U.S.-based MNC that has a subsidiary in Germany and another subsidiary in Greece. Both subsidiaries frequently remit their earnings back to the parent company. The German subsidiary generated a net outflow of €2,000,000 this year, while the Greek subsidiary generated a net inflow of €1,500,000. What is the net inflow or outflow as measured in U.S. dollars this year? The exchange rate for the euro is $1.05.

a. $3,675,000 outflow

b. $525,000 outflow

c. $525,000 inflow

d. $210,000 outflow

5.

Volusia, Inc. is a U.S.-based exporting firm that expects to receive payments denominated in both euros and Canadian dollars in one month. Based on today's spot rates, the dollar value of the funds to be received is estimated at $500,000 for the euros and $300,000 for the Canadian dollars. Based on data for the last fifty months, Volusia estimates the standard deviation of monthly percentage changes to be 8 percent for the euro and 3 percent for the Canadian dollar. The correlation coefficient between the euro and the Canadian dollar is 0.30.

What is the portfolio standard deviation?

a. 3.00%.

b. 5.44%.

c. 17.98%.

d. none of the above

6.

Consider an MNC that is exposed to the Taiwan dollar (TWD) and the Egyptian pound (EGP). 25% of the MNC's funds are Taiwan dollars and 75% are pounds. The standard deviation of exchange movements is 7% for Taiwan dollars and 5% for pounds. The correlation coefficient between movements in the value of the Taiwan dollar and the pound is .7. Based on this information, the standard deviation of this two-currency portfolio is approximately:

a. 5.13%.

b. 2.63%.

c. 4.33%.

d. 5.55%.

7.

Treck Co. expects to pay €200,000 in one month for its imports from Greece. It also expects to receive €250,000 for its exports to Italy in one month. Treck Co. estimates the standard deviation of monthly percentage changes of the euro to be 3 percent over the last 40 months. Assume that these percentage changes are normally distributed. Using the value-at-risk (VAR) method based on a 95% (z=1.65) confidence level, what is the maximum one-month loss in dollars if the expected percentage change of the euro during next month is -2%? Assume that the current spot rate of the euro (before considering the maximum one-month loss) is $1.23.

a. -$38,468

b. -$21,371

c. -$17,097

d. -$4,274

Assume that I can borrow money at a rate of 10% per year, but that I only earn 2% per year on money I loan. A friend has recently offered me an investment opportunity; make a $5,000 investment today and receive a guaranteed $5,400 in one year. I currently have $10,000 in the bank, but I plan on consuming $9,000 – meaning that I only have $1,000 that I could invest. Can/should make the investment? How much consumption would I need to be willing to forego to make the investment? (Another way to think about this is what is the maximum amount that I would be willing to borrow to take the investment?)

The newly elected president Susan implements some policies with the intention of boosting income. She succeeds at her goal, since households experience an increase in their incomes. Firms, however, become more cautious about the future of the policies. They think that the policies are only temporal and expect economic conditions to worsen in the future.

a. What is the effect on interest rates of such policies?

b. What is the effect on the number of loans?

Joe Dokes retired today with $1,000,000 in his retirement nest egg.   If he followed a cash flow matching immunization strategy using zero coupon treasuries (STRIPS, CATS, or the like), for how many years could he take out $100,000 given the following yields on zero coupons, an approximation of their levels on 8/16/19?   What would you advise Mr. Dokes to do in order to prolong the life of his nest egg?

XYZ Company is considering purchasing a piece of equipment costing $400,000. It has a useful life of 4years and will be depreciated straight-line to zero, after which it will be scrapped for $30,000. This piece of equipment will save $150,000 per year in pretax operating costs during its useful life but requires an initial investment in NWC of $36,000. XYZ Company has a 21% tax rate and a required rate of return of 12%

What is the annual Operating Cash Flow (OCF) of this piece of equipment in Years 1-4?

What is the Year 4IATCF (Income After-Tax Cash Flow)?

What is the NPV of purchasing this piece of equipment?

Should XYZ Company take on this project?

What is the project's EAC?

Five years ago, Miguel invested a stock with price $35 per share. The stock price at the end of every year is as the following. Assumes no dividends paid during these years. Year Price 0 35 1 37 2 36 3 40 4 42 5 45 a) What was Migule’s holding period return on this stock for last five years? b) What was Migule’s annual internal rate of return? c) What was the standard deviation of returns of Migule’s investment?

Woodbridge Manufacturing case in Appendix E, and use the three primary project evaluation methods (NPV, IRR and Payback) to determine the acceptability of this capital expenditure project. The cost of the new equipment to build a new product, including shipping and installation, (the initial investment outlay) is $100,000. The net additional receivables and inventory needed to support sales of the new project of $12,979 is scheduled to be incurred during year 1. (Side note: This is a little unusual. Generally these costs are incurred at time 0.) The new product is expected to have a five year life, and during that time the sum of the additional gross margin over and above what the previous product earned, plus the tax savings from the greater depreciation (the supplemental annual cash flows) amounts to $38,875 each year. In addition, the $14,469 in additional receivables and inventory (included in the net $12,979 year 1 investment outlay) will be recovered at the end of year 5 (the terminal value). (Second side note: You may ask, how can they recover more in receivables and inventory than they invested in the first place? The answer is the original amount is the net between what was invested for this new project ($14,469) and what had been already invested in the prior project ($1, 940)). In this case there was no salvage value on the machine that was used for the project, but if there were, the net after-tax cash flow from the salvage value would also be included in the terminal value. The Treasury Department at your company tells you the appropriate weighted average cost of capital (the discount rate) is 10% for this type of project. Calculate the NPV and state whether, from a financial standpoint, this project would be acceptable based on the NPV criteria. Calculate the IRR and Payback. What do these methods indicate as far as the acceptability of the project?

1) The marketing manager feels the total supplemental annual cash flows over the five years of the project were good at $194,375, but felt the adoption rate would likely be much faster, resulting in a cash flow profile of $38,875 in year 1, $77,750 in year 2, $38,875 in year 3, $29,200 in year 4 and $9,675 in year 5. How do these changes affect the project evaluation measures and acceptability?

The controller feels that the adoption rate would likely be much slower, resulting in a cash flow profile of $9,675 in year 1, $29,200 in year 2, $38,875 in year 3, $77,750 in year 4 and $38,875 in year 5. How do these changes affect the project evaluation measures and acceptability?

The company Treasury Department decides that the discount rate should be increased to 15%, based on a closer evaluation of the risks of the project. Going back to the original cash flow profile, what affect does this change have on the project return and its acceptability?

From these examples, sum up what you have learned about the NPV project evaluation method. What general rules can you draw from these calculations and results?

Woo Audio is a small company in New York that makes high-quality headphone amplifiers. The company makes each amplifier by hand using premium audio components and vacuum tubes. Recently, the owner of the company noticed a trend in the headphone community toward using portable, high-quality headphone amplifiers. These new units combine a digital-to-analog converter with a high-power amplifier in a package small enough to put in a pocket.

Review the three-phase, eight-stage, new product development process:

• Phase I: Generating and Screening Ideas
  Stage 1: Generating New Product Ideas
  Stage 2: Screening Product Ideas
  Stage 3: Concept Development and Testing
• Phase II: Developing New Products
  Stage 4: Business Case Analysis
  Stage 5: Technical and Marketing Development
• Phase III: Commercializing New Product
  Stage 6: Test Marketing and Validation
  Stage 7: Launch
  Stage 8: Evaluation

Select one of the phases and explain how Woo Audio would proceed through that phase to develop a conceptual new product that will generate excitement in the headphone community.

please discrete the difference between capital planning and capital budgeting.

You currently have $55,000 in your retirement account.  You will make deposits of $11,000/year into your account for the next 20 years.  If the account earns 8% compounded quarterly, calculate how much you have in your account when you retire in 20 years.