Consider the following information about Stocks A and B: Rate of Return if State Occurs State of Probability of Economy State of Economy Stock A Stock B Recession 0.26 0.03 − 0.34 Normal 0.56 0.20 0.14 Irrational exuberance 0.18 0.09 0.54 The market risk premium is 5 percent, and the risk-free rate is 3 percent. (Round your answers to 2 decimal places. (e.g., 32.16)) The standard deviation on Stock A's return is percent, and the Stock A beta is . The standard deviation on Stock B's return is percent, and the Stock B beta is . Therefore, based on the stock's systematic risk/beta, which Stock is "riskier".

You are considering making a movie. The movie is expected to cost $ 10.2 million up front and take a year to produce. After​ that, it is expected to make $ 4.9 million in the year it is released and $ 2.1 million for the following four years. What is the payback period of this​ investment? If you require a payback period of two​ years, will you make the​ movie? Does the movie have positive NPV if the cost of capital is 10.6 %​?
What is the payback period of this​ investment?

Consider the following information: Rate of Return if State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom 0.60 0.09 0.18 0.36 Bust 0.40 0.15 0.07 − 0.05 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Expected return % b. What is the variance of a portfolio invested 15 percent each in A and B and 70 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places. (e.g., 32.161616)) Variance =?

Digital Access Inc. needs $323,640 in funds for a project. (Assume the loan term is one year.) a. With a compensating balance requirement of 7 percent, how much will the firm need to borrow? (Do not round intermediate calculations.) Amount to be borrowed $ b. Given your answer to part a and a stated interest rate of 17 percent on the total amount borrowed, what is the effective rate on the $323,640 actually being used? (Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest %

The Herjavec Co. just paid a dividend of $1.95 per share on its stock. The dividends are expected to grow at a constant rate of 3 per year indefinitely. Investors require a return of 11 percent on the companys stock. What is the current price of the stock? What will the price be in three years? What will the price be in 6 years?

Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $32,500 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $405,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $825,000 to his nephew Frodo. He can afford to save $3,800 per month for the next 10 years. If he can earn an EAR of 10 percent before he retires and an EAR of 7 percent after he retires, how much will he have to save each month in Years 11 through 30

Read the following scenario and complete the questions below.

The entire poultry industry is working hard to keep up with demand, but egg production is falling behind. According to the USDA’s Economic Research Service, the price of eggs in the U.S. is expected to rise more than 35 percent in 2018. The cause of this egg price increases? An uptick in foreign demand for US eggs is partly to blame. When avian influenza devastated Europe this past year, egg suppliers in the U.S. stepped in to help fill the demand in these countries. Another problem arose in late 2017 where some egg supplies were contaminated with a dangerous insecticide, affecting countries including Germany, France, and Belgium. With millions of eggs being pulled from the shelves in Europe, US exports of eggs rose 663 percent between 2016 and 2017. Domestic demand has increased as well. In the United States, 2017 saw a 20-year record in egg consumption at 275.2 eggs per person per year. When you multiply that by 325 million Americans, that’s a lot of eggs.

Now, consider the commercial use of eggs in the production of grocery items such as bread, ice cream, pasta, cakes, and waffles. Let’s focus on the Sara Lee® All Butter Pound Cake® found in the freezer section of your local grocery store. The first ingredient listed on the package is, you guessed it – eggs. The pound cake sells for around $3.97 at the grocery store. However, with the price of eggs on the rise, it is likely that the $3.97 price may change.

1. Which of Sara Lee’s variances will be affected by the increase in egg prices? Why?
2. Will the increase in egg prices result in favorable or unfavorable variances for Sara Lee? Why?
3. What is Sara Lee® likely to do to its standards based on this increase in price and which standards will be impacted?
4. What, if anything, can Sara Lee® do to mitigate the impact of the rising cost of eggs on its manufacturing costs?

1. Your younger brother will start college in five years. He has just informed your parents that he wants to go to State University, which will cost $22,000 per year for four years (cost assumed to come at the beginning of each year). Anticipating his ambitions, your parents started investing $3,000 per year (at the END of each year) five years ago and will continue to do so for five more years. How much more will your parents have to invest at the END of each year for the next five years to have the necessary fund for his education? Use 12% as the appropriate interest rate throughout this problem.

Mest Company has nine employees. FICA Social Security taxes are 6.2% of the first $127,200 paid to each employee, and FICA Medicare taxes are 1.45% of gross pay. FUTA taxes are 0.6% and SUTA taxes are 5.4% of the first $7,000 paid to each employee. Cumulative pay for the current year for each of its employees follows.

a. Compute the amounts in this table for each employee.

b. For the company, compute each total for: FICA Social Security taxes, FICA Medicare taxes, FUTA taxes, and SUTA taxes.

Chapter 18 Discussion and Lecture Comments

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The Rebuilding Decision

After Tom and Elise Ryan finished veterinary school in the early 2000s, they spent several years working for other veterinary clinics. By 2007, they felt it was time for them to start their own practice. They considered several towns in the south-central United States, visiting local chambers of commerce and studying each town’s demographics. They finally settled in Wardston, a small city in Arkansas. Wardston is a regional center for the surrounding counties, located at the intersection of a two major cross-state highways. The industry rule of thumb is that it takes a population of 1,500 pet owners to support one veterinarian. Wardston appeared to be an underserved area, and no other veterinarian in the area was treating large animals. A big factor in their decision also was the fact that Elise’s parents and three brothers lived in Wardston. “If we failed, at least we knew we could get a good homemade meal,” said Tom.

They bought an abandoned veterinary clinic with a three-quarter-acre plot of land on the major thoroughfare. The clinic, a sturdy 2,000-square-foot cinderblock structure, had been constructed in 1950 and needed major renovations. Tom and Elise were still paying off $45,000 in student loans and had no savings to draw on. However, Elise’s parents agreed to deed them a house and tract of land to get started. Now a property owner, Tom was able to borrow $165,000 from a local bank. Tom’s family took out a home equity loan to help them complete the renovations. When the clinic opened in the summer of 2008, the small concrete building had been transformed into the Wardston Animal Hospital, a 4,000-square-foot veterinary clinic, complete with treatment room, surgery, kennels, and offices.

As they had anticipated, the area badly needed another vet clinic, and business began to boom. They were able to pay off the loan from Tom’s parents and make improvements to the clinic’s parking area. By 2010, the Wardston Animal Hospital had grown large enough to need another vet, and Dr. Laura Hyde joined the practice. She soon became an equal partner with Tom and Elise.

The clinic building, while adequate for a small practice, was still half a century old with an inconvenient traffic flow. The building was designed around a single center hallway going from north to south. Clients going to exam rooms, animals being weighed, vets heading to treatment rooms, staff going to the break room all had to go down same central hallway. The partners always knew that they eventually wanted to build a new “ideal” clinic. Elise kept a notebook full of ideas and possible floor plans that they dubbed their “five-year plan.”

Then in April 2015 a line of severe thunderstorms passed through the city. It was a Wednesday afternoon, the clinic’s early closure day, and the staff—with the exception of the office manager—had left the building. At 3:00 p.m., a tornado dropped out of the squall line and plowed through the northern part of the city, tearing the roof off the Wardston clinic and wrapping it around several nearby pine trees. For three hours, a steady downpour flooded the damaged building, leaving six inches of water on the treatment room floor. Worse still, the rainwater soaked into the insulation in the walls, the sheetrock on the walls, and the ceiling tiles. Volunteers, staff, even other veterinarians flocked to the clinic to help ferry the boarded animals to temporary homes and clean up the shredded interior. None of the animals were hurt, and no one was injured, although the clinic office manager was in shock for a few days.

Within two weeks, the partners were back in business, operating out of a doublewide trailer set up on the north side of the parking lot. They hired a cleanup service to start the long process of recovery. The cleaning crew soon realized the extent of the damage and told the partners that the cleanup would be very costly. They also warned that the soggy walls and ceiling would probably have mildew problems in the future no matter how thoroughly the building was cleaned.

Tom, Elise, and Laura had to make a decision about how to proceed. As Tom saw it, there were four options to consider:

Plan A: Restore the building to its existing condition before the tornado. The $150,000 insurance settlement would just cover the renovation costs. This option would be the least costly, but they would still have the same 55-year-old building with the same bad traffic flow.

Plan B: Gut the old building and create the “ideal” building within the old shell, total cost approximately $400,000.

Plan C: Level the old building and rebuild on the site. This option was almost immediately eliminated for several reasons. First, the cost just to demolish the building would be $50,000. Also, the clinic staff was using undamaged parts of the old building for kennel space and storage. The doublewide trailer alone would be inadequate to support the practice if the old building were immediately demolished.

Plan D: Build the clinic of their dreams on land the partners owned adjacent to the clinic. The clinic would take almost a year to complete at a cost of $650,000.

Discussion questions for bonus case 18-1

1. Are there other options that have not been considered? Explain.
2. How should the renovations or rebuilding be financed—debt or equity financing? Why?
3. What would you advise the veterinary partners to do? Why?
4. If the Wardston area suffered a major economic blow, what risks would the partnership face?

What rate do you need to earn annually for an initial investment of a $1 to equal $10 if you are investing for only a five-year period? SHOW WORK, Explain thoroughly AND USE EXCEL Please and many Thanks. I want to learn this, but I am stuck on this one.

You deposit $11,000 annually into a life insurance fund for the next 11 years, after which time you plan to retire.

a. If the deposits are made at the beginning of the year and earn an interest rate of 6 percent, what will be the amount in the retirement fund at the end of year 11?
b. Instead of a lump sum, you wish to receive annuities for the next 22 years (years 12 through 33). What is the constant annual payment you expect to receive at the beginning of each year if you assume an interest rate of 6 percent during the distribution period?
c. Repeat parts (a) and (b) above assuming earning rates of 5 percent and 7 percent during the deposit period and earning rates of 5 percent and 7 percent during the distribution period.

NPV

A project has an initial cost of $49,300, expected net cash inflows of $11,000 per year for 11 years, and a cost of capital of 13%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent.

1. What kind of data is represented in this table? (qualitative versus quantitative)
2. What diagram is best suited to represent this data? Why?
3. Please produce the diagram recommended in q2 (using SPSS/Excel).
4. What conclusions can be drawn from analysing and interpreting this data?
5. How would you explain the missing data?

1. Now that you have submitted your response, comment on the responses of two of your peers.

After the American president election day, the Australian share market had a big drop in most share prices. A registered tax agent thought it was a good opportunity to trade for a gain, but he did not have sufficient fund. Meanwhile in his business trust account, two tax refunds for recently lodged two tax returns had just been received, so he transferred those refunds and purchased large quantity of shares. Two days later, he sold off those shares with a gain, and then transferred the refunds back to his customers’ bank accounts. Identify and explain any ethical issues in respect of the tax agent’s conduct. (minimum 100 words)