A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.3%. The probability distributions of the risky funds are:

The correlation between the fund returns is 0.0630.

What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

Valuation of a constant growth stock

Investors require a 18% rate of return on Levine Company's stock (i.e., rs = 18%).

A. What is its value if the previous dividend was D0 = $1.75 and investors expect dividends to grow at a constant annual rate of (1) -7%, (2) 0%, (3) 7%, or (4) 12%? Round your answers to two decimal places.

(1) $

(2) $

(3) $

(4) $

B. Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was 15% and the expected growth rate were (1) 15% or (2) 20%? Are these reasonable results?

I. The results show that the formula makes sense if the required rate of return is equal to or greater than the expected growth rate.

II. 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.

III. The 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.

IV. The 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.

V. The results show that the formula makes sense if the required rate of return is equal to or less than the expected growth rate.

C.Is it reasonable to think that a constant growth stock could have g > rs?

I. It is not reasonable for a firm to grow even for a short period of time at a rate higher than its required return.

II. It is not reasonable for a firm to grow indefinitely at a rate lower than its required return.

III. It is not reasonable for a firm to grow indefinitely at a rate equal to its required return.

IV. It is not reasonable for a firm to grow indefinitely at a rate higher than its required return.

V. It is reasonable for a firm to grow indefinitely at a rate higher than its required return.

Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 77,000 2 90,000 3 104,000 4 99,000 5 80,000 Production of the implants will require $1,560,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $1,460,000 per year, variable production costs are $245 per unit, and the units are priced at $360 each. The equipment needed to begin production has an installed cost of $20,600,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 25 percent of its acquisition cost. AAI is in the 30 percent marginal tax bracket and has a required return on all its projects of 19 percent. (MACRS schedule) What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ What is the IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

IRR $

Do you believe that most citizens receive their information about whether the federal governmental branches are using their resources efficiently from the published financial statements? Why or why not?  Explain.

1) A company wants to compare the yield from a $200,000 state-issued bond with a tax-exempt yield of 6.5% to that of a 182-day $200,000 T-bill with an 8.51% discount rate. Assuming that the investor has a marginal tax rate of 32%, what are the bond equivalent yield (BEY) and the tax equivalent yield (TEY) for the appropriate instruments?

a. 9.56% TEY (state bond); 9.02% BEY (T-bill)

b. 9.56% TEY (state bond); 8.63% BEY (T-bill)

c. 8.32% TEY (state bond); 8.63% BEY (T-bill)

d. 8.32% TEY (state bond); 9.02% BEY (T-bill)

What is Apple Inc. 2019

- Inventory turnover=cost of goods sold/ inventory

- Average collection period or days sales outstanding= Accounts Receivable/Total Sales/360?

Jason has just bought a bond that pays 2% annual coupons with $1,000 face value and 30 years to maturity. (a) If the yield of the bond bought today was 3%, what was its purchase price? (b) One year later, the bond's YTM has dropped to 2.5%. If you sell the bond immediately after receiving the coupon, i) what is the bond’s current yield? ii) what is the bond’s capital gains yield (CGY)? iii) what is the bond’s total (holding period/1-year total) yield? (1 mark) (c) Now suppose another year has passed and the bond’s YTM remains unchanged at the previous year’s (Year one) level. If you sell the bond immediately after receiving the second year’s coupon, calculate i) the 2-year CGY ii) the total interest incomes (coupon and reinvestment of coupons) for the two years iii) the 2-year holding period/total yield.

Consider a project to supply 106 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,960,000 five years ago; if the land were sold today, it would net you $2,160,000 aftertax. The land can be sold for $2,360,000 after taxes in five years. You will need to install $5.46 million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project’s five-year life. The equipment can be sold for $560,000 at the end of the project. You will also need $660,000 in initial net working capital for the project, and an additional investment of $56,000 in every year thereafter. Your production costs are .56 cents per stamp, and you have fixed costs of $1,080,000 per year. If your tax rate is 34 percent and your required return on this project is 12 percent, what bid price should you submit on the contract? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)

Bid price $

Identify at least two ways you might implement knowledge of budget analysis in your current occupation or in a future career.

Identify the aspects of finance that you feel you understand best after taking this course. What are some areas in which you believe you may need more training in the future? Explain why you have chosen both the aspects you understand and those you feel require more training and/or information.

MBA 6400 Case Study #1

Short-term investment returns: money market instruments Part of your responsibilities as a junior financial analyst is researching and identifying potential short-term liquid investment options for your firm. These investment vehicles are at times used by the firm during periods when their cash inflows exceed projections. The firm, at times, uses excess cash to purchase short-term debt instruments providing a low, but safe marginal return on invested capital.

Your Director, who reports to the firm's Chief Financial Officer (CFO) has come to you seeking your recommendation on short-term investment options for the upcoming year. The Director has asked for recommendations and a report illustrating your optimal analysis for investing $2.5m of excess cash.  

Current background info: We have a potential impending compound money market problem: The U.S. is issuing more debt, in part due to the recent tax cuts. Simultaneously, the Fed, China, Japan and to a lesser degree Russia have been reducing their holdings of U.S. Debt. Therefore, if the U.S. Treasury Department can't get entities to their positions holding U.S. debt, then the pressure to increase interest rates to make newly issued securities attractive increases. Increased interest rates at the Treasury means securities prices fall with cascading impacts.

Therefore, the current interest rate environment is one where rates are expected to increase.

The analysis report to be presented to the Director is to include:

1. Your concise statement and recommendation of the specific short-term investment options that meets the firm's criteria.

2. A detailed summary of the investment asset and the parameters you will use in which to base your recommendation.

3. A detailed description of the upside and downside risk of each investment. The latter is of particular importance as the firm may decide to manage excess cash in one or more vehicles for longer than one year.

4. Source identifier for all investment selections

a. Example: website URL

5. A spreadsheet (embedded into the report) illustrating the following:

a. Asset category/classification

b. Specific money market instrument identifier i. Example: U.S. Treasury CUSIP

6. EAR for each investment

7. YTM for each investment

a. If held to maturity

b. If sold at the end of 12 months

8. Total return for investment portfolio if held to maturity

9. Spreadsheet model is to include all cell-based formulas for all calculations Your conclusion is to summarize the recommendation made in item #1 above Format for report.

Assume that you are the chief financial officer at Porter Memorial Hospital. The CEO has asked you to analyze 2 proposed capital investments--Project X and Project Y. Each project requires a net investment layout of $10,000 and the cost for each project is 12%. The projects expected net cash flows are as follows?

Calculate each project's payback period, net present value, and internal rate of return

Calculate each project's payback period, net present value, and internal rate of return