Warren Buffett recently said it’s a 'terrible mistake' for long-term investors to be in bonds – why?

A beauty product company is developing a new fragrance named Happy Forever. There is a probability of 0.51 that consumers will love Happy Forever, and in this case, annual sales will be 1.09 million bottles; a probability of 0.39 that consumers will find the smell acceptable and annual sales will be 193,000 bottles; and a probability of 0.10 that consumers will find the smell unpleasant and annual sales will be only 45,000 bottles. The selling price is $36, and the variable cost is $11 per bottle. Fixed production costs will be $1.00 million per year, and depreciation will be $1.21 million. Assume that the marginal tax rate is 40 percent.

What are the expected annual incremental after-tax free cash flows from the new fragrance?

12.

Investors require an 8% rate of return on Mather Company's stock (i.e., r_s = 8%).

1. What is its value if the previous dividend was D₀ = $1.50 and investors expect dividends to grow at a constant annual rate of (1) -3%, (2) 0%, (3) 3%, or (4) 6%? Do not round intermediate calculations. Round your answers to the nearest cent.

   (1) $  

   (2) $  

   (3) $  

   (4) $  

2. Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was 8% and the expected growth rate was (1) 8% or (2) 12%? Round your answers to the nearest cent. If the value is undefined, enter N/A.

   (1) $  

   (2) $  

   Are these reasonable results?

   1. These results show that the formula makes sense if the required rate of return is equal to or greater than the expected growth rate.
   2. These results show that the formula does not make sense if the expected growth rate is equal to or less than the required rate of return.
   3. These results show that the formula does not make sense if the required rate of return is equal to or less than the expected growth rate.
   4. These results show that the formula does not make sense if the required rate of return is equal to or greater than the expected growth rate.
   5. These results show that the formula makes sense if the required rate of return is equal to or less than the expected growth rate.
   
   -Select
   
3. Is it reasonable to think that a constant growth stock could have g > r_s?
   
   1. It is not reasonable for a firm to grow even for a short period of time at a rate higher than its required return.
   2. It is not reasonable for a firm to grow indefinitely at a rate lower than its required return.
   3. It is not reasonable for a firm to grow indefinitely at a rate equal to its required return.
   4. It is not reasonable for a firm to grow indefinitely at a rate higher than its required return.
   5. It is reasonable for a firm to grow indefinitely at a rate higher than its required return.
   
   -Select-
   

For this question ask for the expected return -beta relationship .

Must I repeat the E(R) formula for Beta F1 & F2 and then compare the answers?

pg. 139 of Investments 11th edition thanks!

There's the question:

4. Suppose the there are two independent economic factors F1 and F2. The risk free rate is 6% and all the stocks have independent firm specific components with a standard deviation of 45%. Portfolios A and B are both well diversified with the properties:

Portfolio

A 1.5 (Beta F1) 2.0 (Beta F2) 31% (Expected Return)

B 2.2 (Beta F1)  -0.2 (Beta F2) 27% (Expected Return)

What is the expected return beta-relationship in this economy?

thanks again.

Caddie Manufacturing has a target debt-equity ratio of .60. Its cost of equity is 11 percent, and its pretax cost of debt is 6 percent. If the tax rate is 22 percent, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

                                                                                          E(R)

                                                                                          Stock A                    Stock B

State                                           p(i)                             E(Ra)                         E(Rb)

Recession                                30%                          -30%                         -20%

Normal                                     40%                          10%                          10%                          

Expansion                               30%                          50%                          30%

Beta                                                                                1.4                             1.25

R_f                                                                                      3%

R_M                                                                                    8%

1. What is the expected return on Stock A across all market situations?

What is the expected return on Stock B across all market situations?

2. What is the standard deviation of Stock A’s return?

What is the standard deviation of Stock B’s return?

3. With a mix of 75% Stock A and 25% Stock B what is the portfolio return?

With a mix of 75% Stock A and 25% Stock B what is the portfolio standard deviation?

4. Which of the two stocks has higher total risk?

Which of the two stocks has higher systematic risk?

5. Which of the two stocks has a higher Reward-to-Risk Ratio?

Are the two stocks under or over-valued based on the Capital asset Pricing Model?

6. What return would you expect on each stock based on the Capital Asset Pricing Model?

Identify the intermediate objectives for macro prudential policy that have been put forward by the European Systemic Risk Board. Provide a rationale for each of these objectives. Provide detailed examples of their introduction in Basel 3 and by regulatory authorities.

Project L requires an initial outlay at t = 0 of $45,000, its expected cash inflows are $11,000 per year for 9 years, and its WACC is 8%. What is the project's discounted payback? Do not round intermediate calculations. Round your answer to two decimal places. (in years)

Project L requires an initial outlay at t = 0 of $48,273, its expected cash inflows are $10,000 per year for 8 years, and its WACC is 9%. What is the project's IRR? Round your answer to two decimal places.

The CEO of Garneau Cinemas is considering making a movie and must decide between a comedy and a thriller—it ​doesn't have the production space to make both. The comedy is expected to cost $25 million up front​ (at t​ = 0). After​ that, it is expected to make 16 million in the first year​ (at t​ = 1) and $44 million in each of the following two years​ (at t​ = 2 and t​ = 3). In the fourth year​ (at t​ = 5), it is expected that the movie can be sold into syndication for ​$22 million with no further cash flows back to Garneau Cinemas. The thriller is expected to cost ​$40 million up front​ (at t​ = 0). After​ that, it is expected to make $20 million in the first year​ (at t​ = 1) and $44 million in each of the following four years​ (at t​ = 2,​ 3, 4, and​ 5). In the sixth year​ (at t​ = 6), it is expected that the movie can be sold into syndication for $30 million with no further cash flows back to Garneau Cinemas. The cost of capital is 11​%,and Garneau usually requires projects to have a payback within four years. Determine each​ project's payback and​ NPV, and advise the CEO what she should do.

a) The payback for the comedy is _____ ​years, and the NPV of the comedy is $_____?

b) The payback for the thriller is _____ ​years, and the NPV of the thriller is $_____?

Please respond to the following: The catering theory of dividends suggests that managers pay dividends because of investor demand. Using knowledge gained from this chapter, conduct a search for an article on this theory. Indicate the article you found and briefly provide an opinion on this theory. Propose alternative ways, covered in the reading material this week, in which investors can receive cash returns from their investment in the equity of a company.

​(Calculating free cash flows​) Spartan Stores is expanding operations with the introduction of a new distribution center. Not only will sales increase but investment in inventory will decline due to increased efficiencies in getting inventory to showrooms. As a result of this new distribution​ center, Spartan expects a change in EBIT of ​$900,000. Although inventory is expected to drop from ​$89,000 to ​$62,000​, accounts receivables are expected to climb as a result of increased credit sales from ​$80,000 to ​$190,000. In​ addition, accounts payable are expected to increase from ​$67,000 to ​$84,000. This project will also produce ​$300,000 of bonus depreciation in year 1 and Spartan Stores is in the 35 percent marginal tax rate. What is the​ project's free cash flow in year​ 1?

johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $47,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $11,750. The grill will have no effect on revenues but will save Johnny’s $23,500 in energy expenses. The tax rate is 30%.

Required:

a. What are the operating cash flows in each year?

b. What are the total cash flows in each year?

c. Assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

Carter Enterprises can issue floating-rate debt at LIBOR + 2% or fixed-rate debt at 10%. Brence Manufacturing can issue floating-rate debt at LIBOR + 2.3% or fixed-rate debt at 12%. Suppose Carter issues floating-rate debt and Brence issues fixed-rate debt. They are considering a swap in which Carter makes a fixed-rate payment of 8.90% to Brence and Brence makes a payment of LIBOR to Carter. What are the net payments of Carter and Brence if they engage in the swap? Round your answers to two decimal places. Use a minus sign to enter negative values, if any.

What is the net payment of Carter?.......%