What is the difference between risk aversion and loss aversion?

Provide an example of an asset and determine either it’s present or future value.

For example, one type of asset is cash. If I have $1,000 today this is it’s present value. If I purchase a certificate of deposit from my bank for one year at an interest rate of 10% compounded annually. It’s future value would be $1,100.

You can give examples of Bonds (present value at a current yield) or

Stocks (present value using the Constant Growth Model) or the present value of future cash flows at a specific interest rate.

Provide an example and explain.

You and your significant other are going to have a baby one year from now.

Of course your little pride-and-joy is going to be cute AND smart. After much consultation, your significant other and you have decided that you want the little one to go to a private four-year college in the United States. However, private colleges are very expensive. The average current cost is estimated to be around $43,921 per year, including tuition, fees, room, and board. You expect these costs to increase by 3% per year beyond the current annual rate of inflation of 2%.

Your child will most likely begin college eighteen (18) years after birth. Colleges tend to demand payment of the annual cost at the beginning of each year. You expect to invest your money in a manner that returns 7.50% per year over the foreseeable future. You want to start saving soon. In fact, you plan to invest money every year. To be precise, you will put away money once a year, starting when the baby is born, and ending one year prior to the beginning of your child’s first year in college.

A. Suppose you want to save the same (constant) amount each year in nominal dollars. How much will you have to save each year so that there is enough money to send your child to college?

B. (13 points) Now suppose that you want to save a constant percentage of your salary every year. Assume that your current household income is $100,000 per year, and assume that it will grow at the rate of inflation over the foreseeable future. What (constant) percentage of your salary will you have to save each year so that there is enough money to send your child to college? What is the constant amount you will save every year in real dollars, and what are the corresponding (increasing) amounts saved in nominal dollars each year?

Hint 1: For part A, verify your work by calculating the value of the savings account each year and make sure it starts at $0 and ends at $0.

Hint 2: Your answers to parts A and B must be the same in present value terms.

1 I.e., college costs will increase by (1+0.02)*(1+0.03)-1 per year for the foreseeable future.

KANASAS FOOD has 300,000 shares outstanding, debt of $9,000,000, and cash of $400,000. The firm is expecting fixed free cash flows of $2,000,000 for 2 years. After that, free cash flows are expected to grow by 7.0% per year. The weighted-average cost of capital for High Point Grill is 16.2%. Use DCF analysis to estimate the share price of KANSAS stock.

Assume the return on a market index represents the common factor and all stocks in the economy have a beta of 1. Firm-specific returns all have a standard deviation of 41%. Suppose an analyst studies 20 stocks and finds that one-half have an alpha of 4.3%, and one-half have an alpha of –4.3%. The analyst then buys $1.3 million of an equally weighted portfolio of the positive-alpha stocks and sells short $1.3 million of an equally weighted portfolio of the negative-alpha stocks.

a. What is the expected return (in dollars), and what is the standard deviation (in dollars) of the analyst’s profit? (Enter your answers in dollars not in millions. Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

b-1. How does your answer for standard deviation change if the analyst examines 50 stocks instead of 20? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

b-2. How does your answer for standard deviation change if the analyst examines 100 stocks instead of 20? (Enter your answer in dollars not in millions.)

Howell petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.97 million. The marketing department predicts that sales related to the project will be $2.67 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $320,000 immediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 35 percent. The required rate of return is 13 percent.

A/ What is the NPV for this project?

B/ Should the company proceed with the project?

Wilson pharmaceutical is planning a 100 million for development of a new cancer drug. the development will be financed with a combination of debt preferred equity and common equity. the firms current capitol structure which considers to be optimal consists pf 30% debt 20% preferred equity and 50% common equity. the firm can issue bond with a cost of 12% before tax. the investment banker expects to sell the issue at its $100 par value per stock with a $14 annual dividend and will charge a 5% commission fee. Wilson expects to use any common equity needed to finalize the expansion through issuing new common stock to the public. Wilson expects the net proceeds from the sale of the common stock to be $30 per share the firm currently pay a dividend of $3.50 per share and expects its earnings and dividends to grow 10% annual rate for the future the firms marginal tax rate is 40%

a. calculate Wilsons cost of preferred stock

b. cost of external equity

c. calculate wacc

Local Co. has sales of $ 10.0 million and cost of sales of $ 6.0 million. Its​ selling, general and administrative expenses are  $ 500,000 and its research and development is $ 1.0 million. It has annual depreciation charges of $ 1.0 million and a tax rate of 35 %. ​Local's gross margin is 40.00​%, its operating margin is 15.00​%, and its net profit margin is 9.75​%. If Local Co. had interest expense of $ 800,000​, how would that affect each of its​ margins?

​Local's new gross margin is ___%,

new operating margin is ___​%,

and new net profit margin is ___​%.

DB company just paid a dividend of $ D0 per share. It is estimated that the company's dividend will grow at a rate of 10 percent per year for the next 2 years, then the dividend is expected to grow at constant rate of 6 percent thereafter. You are also given that DB stock’s has beta of 1.2, and the expected market rate of return is 11% and the risk-free rate is 6%. Based on this, the current price of the DB stock is $28.48. What is the value of D0?

After buying a computer system, Sim Thomas must decide whether to purchase (1) a complete maintenance (or service) policy at a cost of $500, which would cover all maintenance costs; (2) a partial maintenance policy at a cost of $300, which would cover some of the costs of maintenance; or (3) no maintenance policy. The consequences, costs and probabilities are given in the following table:

Using EMV, what do you recommend?

when determinig the finacial objective of the company it is necessary to take three types of policies into account investment policy, financing policy and dividend policy. Discuss the nature of the three types of policy dicissions, comment on how they are interelated and how they may affect the value of the firm.

Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.25 yesterday. Bahnsen's dividend is expected to grow at 5% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The appropriate discount rate is 9%.

1. Find the expected dividend for each of the next 3 years; that is, calculate D₁, D₂, and D₃. Note that D₀ = $3.25. Round your answer to the nearest cent.
   
   D₁ = $
   D₂ = $
   D₃ = $
   
2. Given that the first dividend payment will occur 1 year from now, find the present value of the dividend stream; that is, calculate the PVs of D₁, D₂, and D₃, and then sum these PVs. Round your answer to the nearest cent. Do not round your intermediate calculations.
   $
   
3. You expect the price of the stock 3 years from now to be $98.76; that is, you expect  to equal $98.76. Discounted at a 9% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $98.76. Round your answer to the nearest cent. Do not round your intermediate calculations.
   $
   
4. If you plan to buy the stock, hold it for 3 years, and then sell it for $98.76, what is the most you should pay for it today? Round your answer to the nearest cent. Do not round your intermediate calculations.
   $
   
5. Use equation below to calculate the present value of this stock.
             
   Assume that g = 5% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.
   $
   
6. Is the value of this stock dependent upon how long you plan to hold it? In other words, if your planned holding period was 2 years or 5 years rather than 3 years, would this affect the value of the stock today, ?
   
   1. No. The value of the stock is not dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is equal to the value calculated in part e. Any other holding period would produce the same value of .
   2. Yes. The value of the stock is dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is not equal to the value calculated in part e. Any other holding period would produce a different value of .
   3. Yes. The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value of all future expected dividends.
   4. No. The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future.
   5. Yes. The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future.
   
   -Select-

Here is the following information on the Cheesecake Factory, I am trying to answer question 1 below. Can you please help me out? Excel assignment.

• Current Dividend (Source – Yahoo!Finance) $1.28
• Required Return (Estimated) 8.9%
• Current EPS (Source – Yahoo!Finance) $2.14
• Current Book Value Per Share (Source – Yahoo!Finance) $13.24
• Current EBITDA per share (Source – Yahoo!Finance) $5.25
• Current Debt per share è $2.80 Current Cash and Equivalents per share $0.61
• Initial Growth Rate for H-Model (Estimated) 9%
• Terminal Growth Rate for H-Model (Estimated) 3%
• Time to Reach Terminal Growth Rate for H-Model (Estimated) 10 years
• Forecasted Growth Rates (Estimated)
  • Year 1 6%
  • Year 2 9%
  • Year 3 12%
  • Year 4 6%
  • Year 5 4%
  • Years 6 through infinity 3%
• Historical PE, PB and EV/EBITDA (Source – Morningstar and Gurufocus.com)
  • 5-Year Average 19.8 4.1 9.3        
• Comparative PE, PB, and EV/EBITDA for S&P 500 (Source – Morningstar and estimate)
  • 19.2 (5-year avg = 19.6)     3.7 (5-year avg = 2.9)     13.0 (5-year average 12.3)

1. Calculate the price for Cheesecake Factory using the
   1. H-Model
   2. Non-Constant Dividend Valuation Approach
   3. Relative valuation
2. 1. Historical PE, PB, and EV/EBITDA
   2. Comparative PE, PB, and EV/EBITDA (Adjust S&P 500 to reflect Cheesecake Factory’s average discount or premium to the market over the past 5 years. Example, if the S&P 500 had an average PE over the past 5 years of 17.0 and your company had an average PE of 14, then your company has historically traded at 82.35% of the market average PE. Therefore, if the current S&P 500 PE is 17.7, your company should have a PE of 14.58 based on the comparative relative valuation to PE. Take the 14.58 times your firm’s EPS to get fair value using this method.)

What will be the nominal rate of return on a perpetual preferred stock with a $100 par value, a stated dividend of 10% of par, and a current market price of (a) $54.00, (b) $82.00, (c) $101.00, and (d) $148.00? Round your answers to two decimal places.

1. %
   
2. %
   
3. %
   
4. %