"Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the NPV of the PJX5?

a. The PJX5 will cost $1.53 million fully installed and has a 10 year life. It will be depreciated to a book value of $205,829.00 and sold for that amount in year 10.

b. The Engineering Department spent $12,750.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $20,878.00.

d. The PJX5 will reduce operating costs by $484,561.00 per year.

e. CSD’s marginal tax rate is 24.00%.

f. CSD is 75.00% equity-financed.

g. CSD’s 12.00-year, semi-annual pay, 5.67% coupon bond sells for $951.00.

h. CSD’s stock currently has a market value of $20.65 and Mr. Bensen believes the market estimates that dividends will grow at 3.48% forever. Next year’s dividend is projected to be $1.61."

Please round to 2 decimal places

Mr Brown is the manager of a portfolio consisting of stocks as shown below. the market risk premium is 8% and the risk free-rate is 3%

i) Calculate the beta and expected return of the portfolio

ii) Appraise & discuss why Mr Brown included stock Z in the portfolio

iii) Mr Brown strongly believe that the stock market would rise in the next one year. Discuss one possible way that he could use to increase the performance of the portfolio if the stock market were to rise.

Explain how the cost of capital (rate) is calculated and how it is used in capital budgeting decisions.

Over the past couple of weeks, there has been tremendous volatility in the global equity markets. Assume that you own an investment portfolio valued at $250,000 on January 1, 2020. What could you have done to protect the value of your portfolio from these market conditions? What type of stock orders or derivatives would you have used and why? Please explain in detail.

Assuming £1.00 = $1.45 and €1.00 = $1.25, the interest rate in the UK is 6.50% and the interest rate in Germany is 5.45%, determine the forward rate of the   £ / € if interest rate parity (IRP) holds. What does this imply about future forward rates? Explain how you can engage in covered interest arbitrage if the spot rate remains the same, and the interest rate in the UK is still 6.50%, and the forward rate is .868 £ / € .

Amanda works in the currency trading unit of Sumara Workers Bank in Togliatti, Russia. Her latest speculative position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen. The current spot rate is ¥120.00/USD$. She must choose between the 90-day options on the Japanese yen. The premium is 2.75 yen per USD. a. Should Amanda buy a put on yen or a call on yen? b. What is Amanda's break-even price on her option of choice in part a)? c. What is Amanda's gross profit and net profit if the end spot rate is 140 yen/$?

Case Study:

A franchisor in the hair cutting industry wanted to improve the selection process of prospective franchisees, area directors and store managers. They wanted to discern sooner in the interview process which applicants were ideal for their prospective positions. Franchisees were suffering an average annual employee turnover of approximately 200%. Many existing franchisees did not have the right personality for their positions.

They first benchmarked the behavioral requirements of three positions: area director, franchisee and store manager. As a part of this process they also surveyed the personalities of all of their existing area directors and franchisees. The points were used as part of the benchmarking process and were later utilized for the purposes of training and leadership development. These franchisees were trained using the Accord 5 Tier Performance Pyramid and its cognitive approach. Through this approach, their “B players” were able to become “A players,” their “C players” became “B players” and many of their “D players” were able to develop greater levels of success as well. They are now in the process of utilizing similar technologies to select stylists.

They found that area directors with the right personality were able to perform at higher levels and grow their territories at a faster pace. The right area director was able to effectively manage a larger organization, have a greater impact on their franchisees and generated greater revenues because of the impact they displayed. 

They found that franchisees with the right personality are able to reach profitability 33% quicker than those without the right personality. They were also able to grow and maintain their operations. They had significantly lower employee turnover, were more proactive and in general were lower maintenance franchisees. 

They found that by “Getting the People Side of their Business Right” they were able to meet their tactical short term goals while maintaining their strategic vision.

Cost of two-year implementation was approximately $45,000. The franchisor was able to add seven area directors, grow their organization from 350 to 500 locations and set the stage for more profitable growth.

Questions              

Help hair salon make a decision by outlining the Five (5) advantages and Five (5) disadvantages of a staff positioning.   

Assuming that hair salon has adequate capital, would you recommend that he invest in the franchise or open his own shop and why?          

Entrepreneurial research hair salon needed to find out his training and leadership development? Explain Five (5) market research steps.

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 5.2%. The probability distributions of the risky funds are:   

The correlation between the fund returns is .0222.

Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasible CAL.

a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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 4.0%. The probability distributions of the risky funds are:

The correlation between the fund returns is 0.1250.

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

5. The current spot exchange rate is £0.95/$ and the three-month forward rate is £0.91/$. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be £0.93/$ in three months. Assume that you would like to buy or sell £2,000,000. a. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation? b. What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be £0.88/$.

1. Assume the spot rate of the euro is $1.16, and over the next year the Eurozone inflation rate is 2% while the US inflation rate is 3%. According to purchasing power parity (PPP), what will the spot exchange rate be after one year? Assume the spot rate of the euro is $1.16 and the one-year interest rate for the Eurozone and the US are both initially 4.5%. Then assume that the US interest rate decreases to 4% while the Eurozone interest rate remains at 4.5%. According to the international Fisher effect (IFE),
2. 1. What will the spot exchange rate be after one year?
3. 2. What is the underlying factor that would cause such a change in the interest rate differential?

how and why stock market volatility occurs?

Project L costs $30,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is 10%. What is the project's discounted payback? Do not round intermediate calculations. Round your answer to two decimal places.