Discuss the benefits and the cost of increased risk retention?

Minion, Inc., has no debt outstanding and a total market value of $211,875. Earnings before interest and taxes, EBIT, are projected to be $14,300 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 35 percent lower. The company is considering a $33,900 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,500 shares outstanding. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant

. a-1. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued, assuming no taxes. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

a-2. Calculate the percentage changes in ROE for economic expansion or recession, assuming no taxes. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.)

b-1. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b-2. Calculate the percentage changes in ROE for economic expansion and recession after the recapitalization. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Assume the firm has a tax rate of 21 percent.

c-1. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

c-2. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming the firm goes through with the proposed recapitalization. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

1. Unique manifestations of agency problems in global market and how to mitigate the agency issue.

1. International equity markets and Portfolio Management: How to categorize emerging markets; Advantages of cross-listing, how to cross-list, what ADRs are, the types and advantages of ADR. Home bias & reasons for home bias; mutual fund and advantages

6. International banking and money market: Understand reasons for international banking, types of international banking offices and what they are. Especially, Correspondent, representative, & subsidiary banks.

You have decided to invest in a small commercial office building that has one tenant for a price of $200,000. The tenant has a lease that calls for annual rent

payments of $15,000 per year for the next three years. Hint # 1 However, after that leases expires you expect to be able to increase the

rent by 4% per year for the next 7 years. Hint # 2 You plan to sell the building for $325, 000 ten years from now. Hint # 3

1. Complete table 1 showing the projected cash flows for this investment, assuming the next lease payment will be made at the end of year one

B. Assuming that you need to earn 11% on this investment, what is the maximum price you would be willing to pay for the building?

3. If the current price was $250,000 what rate of return would you earn.

The current price of the stock is $160. The put option price for these shares with an exercise price of 150 is $7 and the call option price is also $7 for those shares with the same maturity and exercise price of 180. · put option 1 for a week contract and call option contracts to purchase shares when selling answer the following questions.

1) In the expiry of the option, print out the gains and losses resulting from the above strategy.

2) Calculate the maximum profit and the maximum loss size and determine the range of share prices that occur respectively.

3) Find the stock price of the break-even.

14) In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows: Long-term debt (bonds, at par) $23,500,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings 4,000,000 Total debt and equity $39,500,000 The bonds have a 7.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt? A. $ 7,706,000 B. $17,436,237 C. $18,330,403 D. $17,883,320 E. $ 7,898,650

Each year, Worrix Corporation manufactures and sells 3,300 premium-quality multimedia projectors at $12,300 per unit. At the current production level, the firm’s manufacturing costs include variable costs of $2,800 per unit and annual fixed costs of $6,300,000. Selling, administrative, and other expenses (not including 15% sales commissions) are $10,300,000 per year. The new model, introduced a year ago, has experienced a flickering problem. On average, the firm reworks 40% of the completed units and still has to repair under warranty 15% of the units shipped. The additional work required for rework and repair caused the firm to add additional capacity with annual fixed costs of $2,100,000. The variable costs per unit are $2,300 for rework and $2,800, including transportation cost, for repair. The chief engineer, Patti Mehandra, has proposed a modified manufacturing process that will almost entirely eliminate the flickering problem. The new process will require $12,300,000 for new equipment (including installation cost) and $3,300,000 for training. The firm currently inspects all units before shipment. Patti believes that current appraisal costs of $600,300 per year and $53 per unit can be eliminated within 1 year after the installation of the new process. Furthermore, if the new investment is made, warranty repair cost per unit are estimated to be only $1,300, for no more than 5% of the units shipped. Worrix believes that none of the fixed costs of rework or repair can be saved and that a new model will be introduced in 3 years. This new technology would most likely render obsolete the equipment the company purchased a year ago. The accountant estimates that warranty repairs now cause the firm to lose 20% of its potential business.

Required: 1. What is the total required initial investment cost (cash outlay) associated with the new manufacturing process?

2. What is the total expected change (i.e., increase or decrease) in cost of quality over the next 3 years from using the new manufacturing process being proposed?

3. Based solely on financial considerations, should Worrix invest in the new process? Specifically: (a) What is the cumulative (i.e., 3-year) estimated change in pretax cash flow assuming the new system is implemented? (b) What is the estimated payback period for the proposed investment? (c) What is the estimated pretax internal rate of return (IRR) for the proposed investment? (Use the built-in IRR function in Excel to answer this question.) (Round your "IRR" answer to 2 decimal places.)

if the inflation rate in the UK is higher than the inflation rate in the US by 3% according to the relative PPP theory, what is your prediction of the British pound FX rate in one year if the current spot rate is 1.20/BP (calculate future spot rate in one year)

Compute the (a) net present value, (b) internal rate of return (IRR), and (c) discounted payback period (DPB) for each of the following projects. The firm’s required rate of return is 14 percent.

Year

Project Alpha

Project Beta

0

$(270,000)

$(300,000)

1

120,000

0

2

120,000

(80,000)

3

120,000

555,000

Which project(s) should be purchased if they are independent? Which project(s) should be purchased if they are mutually exclusive?

What ratios would you use to evaluate management performance?

Two important justifications for trading are (execution and liquidity) Why are they important?