The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $18 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $4.6 million with a 0.2 probability, $2.4 million with a 0.5 probability, and $0.4 million with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations.

3. What is the weighted average cost of capital (WACC) and provide the equation when long-term debt and common equity are used to obtain capital funds? Please describe each component and how you measure each? How does a higher beta affect WACC and why? How does a drop in the bond market effect WACC and why? What is the WACC for a public utility given the following information: beta: 0.8, expected rate of return on the S&P 500: 12.4%, risk-free rate (T-bill yield): 4%, yield to maturity on long-term bonds: 7.2%, required rate of return on preferred stock: 7.5%, common equity ratio: 60%, debt ratio: 30%, preferred stock ratio: 10% and an effective corporate tax rate: 30%.

1. Please explain why money has a time value. Please interpret the present and future value of a series of future cash flows.   What is the effective rate of return? Would you prefer more frequent compounding or less and why?

Considering platforms such as Airbnb and Uber, how will the sharing economy affect employment? And how should businesses adapt to the sharing economy?

You are attempting to value a call option with an exercise price of $145 and one year to expiration. The underlying stock pays no dividends, its current price is $145, and you believe it has a 50% chance of increasing to $155 and a 50% chance of decreasing to $135. The risk-free rate of interest is 5%. Based upon your assumptions, calculate your estimate of the the call option's value using the two-state stock price model. Answer is not $4.76

1. Cash Budgeting

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently run out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,100 per month, and the rent is $2,300 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $250, but Koehl has agreed to maintain an average bank balance of $4,000 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $120,000.

1. Prepare a cash budget for December, January, and February.

   I. Collections and Purchases:
   	December	January	February
   Sales	$	$	$
   Purchases	$	$	$
   Payments for purchases	$	$	$
   Salaries	$	$	$
   Rent	$	$	$
   Taxes	$	---	---
   Total payments	$	$	$
   Cash at start of forecast	$	---	---
   Net cash flow	$	$	$
   Cumulative NCF	$	$	$
   Target cash balance	$	$	$
   Surplus cash or loans needed	$	$	$

2. Suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)
   $

A Treasury note has 9 years till maturity is quoted at 96:17 with a 4.25% coupon. The bond pays interest semiannually. What is the yield to maturity on the bond?

1. What is the primary factory that determines the price of securities? Cn you think of another factor that might significantly affect how investors value the first factor?
2. Discuss the differences, similarities, and ties between finance and accounting.
3. Discuss the relationship between finance and economics
4. How does the activity of investors in financial market affects the decisions of executives within the firm?
5. What are the significant financial advantages and disadvantages of the sole proprietorship/partnership form in comparison with the corporate form?
6. Is limited liability a meaningful concept? Why or why not? And if so, for whom?
7. What conflict(s) of interest can you imagine arising between members of the community which a company operates and some other stakeholders
8. Is the agency problem an ethical issue or an economic issue?
9. Compare and contrast the terms stockholder and stakeholder.

Cash Budgeting

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently run out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,300 per month, and the rent is $2,400 per month. In addition, she must make a tax payment of $10,000 in December. The current cash on hand (on December 1) is $300, but Koehl has agreed to maintain an average bank balance of $7,000 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $150,000.

1. Prepare a cash budget for December, January, and February.

   I. Collections and Purchases:
   	December	January	February
   Sales	$	$	$
   Purchases	$	$	$
   Payments for purchases	$	$	$
   Salaries	$	$	$
   Rent	$	$	$
   Taxes	$	---	---
   Total payments	$	$	$
   Cash at start of forecast	$	---	---
   Net cash flow	$	$	$
   Cumulative NCF	$	$	$
   Target cash balance	$	$	$
   Surplus cash or loans needed	$	$	$

   
   
2. Suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)

Hands Insurance Company issued a $90 million, 1-year, zero-coupon note at 8 percent add-on annual interest (paying one coupon at the end of the year). The proceeds were used to fund a $100 million, 2-year commercial loan at 10 percent annual interest. Immediately after these transactions were simultaneously closed, all market interest rates increased 1.5 percent (150 basis points).

a. What is the true market value of the loan investment and the liability after the change in interest rates? (with the method of solution)

Give a general description of agency theory and provide at least 3 examples of the types of costs firms incur to ensure good corporate governance.

Describe the three forms of the efficient market hypothesis and give an example of observations that support each.

Write a paragraph describing, with one or two examples, a real option associated with a capital investment decision.

Describe why an efficient capital market is essential to the growth and development of an economy.

Discuss the benefits and the cost of increased risk retention?