Emerson Electrical Engineering Inc. is issuing new 20-year bonds that have warrants attached. If not for the attached warrants, the bond would carry an 11% interest rate. However, with the warrants attached the bonds will pay a 9% annual coupon. There are 25 warrants attached to each bond, which have a par value of $1000. The exercise price of the warrants is $25 and the expected stock price 10years from now (when the warrants may be exercised) is $50.77.

a) What is the investor's expected overall pre-tax rate of return for this bond-with-warrants issue?

b) The CEO of Emerson is wondering the possibility of replacing the bonds with warrants by convertible bonds. As the CFO for the company, please state your suggestions and explain.

3..

1,

Which of the following statements is true?

Select one:

a. It is possible to make conclusions about the value of stock options without making any assumption about the volatility of stock prices.

b. The put-call parity also hold for American options

c. The value of a call generally increases as current stock price, the time to expiration, the volatility and the risk-free interest rate decrease.

d. The value of a put generally decreases as current stock price, the time to expiration, the volatility and the risk-free interest rate decrease.

2.

Which of the following describes a long position in an option?

Select one:

a. A position that has been held for a long time

b. A position where an option has been purchased

c. A position where there is more than five years to maturity

d. A position where there is more than five years to maturity

3.

Fill in the blank in the following statement:

“If an option price is _____ the upper bound or below the lower bound, there are profitable opportunities for arbitrageurs.”

Select one:

a. equal to

b. below

c. above

d. None of those above

4.

Fill the blanks in the following sentence:

“Put–call parity is a relationship between the _____, c, of a European call option on a stock and the price, p, of a European put option on a stock.”

Select one:

a. bid

b. offer

c. price

d. volume

5.

In which of the following cases is an asset NOT considered constructively sold?

Select one:

a. The owner shorts a futures contract on the stock

b. The owner shorts a forward contract on the asset

c. The owner buys an in-the-money put option on the asset

d. The owner shorts the asset

6.

Which of the following statements is false?

Select one:

a. The risk-free interest rate does not heavily affect the price of an option.

b. Stock prices tend to increase (decrease) when interest rates fall (rise).

c. The value of a call option is negatively related to the size of any anticipated dividends.

d. Stock prices tend to increase (decrease) when interest rates rise (fall).

7.

Which of the following describes a short position in an option?

Select one:

a. A position in an option lasting less than three months

b. A position in an option lasting less than one month

c. A position where an option has been sold

d. A position in an option lasting less than six months

8.

Fill in the blank in the following text:

"If interest rates in the economy increase, the expected return required by investors from the stock market is likely to ______. "

Select one:

a. stay the same

b. balance

c. decrease

d. increase

9.

A trader buys a call and sells a put with the same strike price and maturity date. What is the position equivalent to?

Select one:

a. a long forward

b. a short forward

c. buying the asset

d. None of the above answers

All else equal, firm A has a higher tax rate than firm B. As a result, which firm has a lower WACC?

Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has very little risk. You obtain the following forecasted returns data for West Coast Bank (WCB) for next year. Assume the possibility of different states of the economy is the same for the next year.

Recession ECB 40% WCB 40% Below average ECB -10% WCB 15% Average ECB 35% WCB -5% Above average ECB -5% WCB -10% Booming ECB 15% WCB 35%

a) Calculated the expected return and stand-alone risk for ECB and WCB respectively

b) Based on your calculation in part a), would you recommend your uncle to do a portfolio of ECB and WCB? Explain.

c)Assume that for now, the market return is 7% and the risk-free return is 2%. What is the beta of stock ECB and stock WCB respectively? Assume the two stocks are in equilibrium.

d) Please comment on your uncle's opinion that ECB has very little risk. Briefly state your reasons.

You would like to save $5,000 today, in preparation for retirement 30 years from now. You have to choose between putting it into one of the two plans describe below:

i) Pay no taxes toady, and put the money into an interest-bearing account. When you withdraw the money on retirement, you pay a 20% tax rate on the money taken from the account. (This is how an Individual Retirement Account, or, IRA works)

ii) Pay a tax rate of 15% of the investment amount today, when you put it into the account, but do not pay any tax when you withdraw funds at retirement. The interest rate you get is the same in both plans.

a) What is the expected present discounted value of each of these plans if the interest rate is 1%? What if the interest rate is 10%? (Note: you can do this with a calculator, but it’s going to be easier with a spreadsheet.)

b) Which plan would you choose in each case?

Brenton Point Health Plan currently zero-debt financing. Its operating profit is $1.5 million, and it pays taxes at a 25% rate. It has $6 million in assets and, because it is all-equity financed, $6 million in equity. Suppose the firm is considering replacing 40% of its equity financing with debt financing that carries a 5% interest rate. What impact would the new capital structure have on Brenton Point Health Plan’s a.Profit? b. Total dollar return to investors? c.Return on Equity?

1. You graduated from college and decided to attend law school. If you go to law school, you will be forced to incur $180,000 in student loans. The re-payment of the student loans will take place over the next ten years after you graduate. The current rate on student loans is 6% ARP (with monthly compounding).
   1. How much in interest will you pay over the lifetime of the loan?
   2. How much interest will save if you add an additional $150 to your monthly payment?

After discovering a new gold vein in the Colorado Mountains, CTC Mining Corp must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend $900,500 for new mining equipment and pay $175,000 for its installation. The gold mined will net the firm an estimated $345,000 each year for the 5-year life of the vein. CTC’s cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year.

1. What are the project’s NPV and IRR?
2. Should this project be undertaken if environmental impacts were not a consideration?
3. How should environmental effects be considered, or any other, project?

The top three contributors to non-interest income is “Other Non-Interest Income”, which includes fees from safe deposit boxes and ATM fees, "Fiduciary Activities", and "Service Charges on Deposit Accounts".

True

False

Which financial statement manipulation technique is described in the following sentence:

A bank pays off Federal Reserve borrowings just prior to the reporting date since the perception of that such borrowing indicates weakness.

A-Off-Balance Sheet Activities

B-Window Dressing

C-Preferred Stock

D-Nonrecurring Sale of Assets

3. Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate, it will cost $22,000, whereas the gas-powered truck will cost $12,500. The cost of capital that applies to both investments is 11%. The life cycle for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,200 per year and those for the gas-powered truck will be $3,500 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck and decide which to recommend.

you wish to retire in 12 years and currently have $50,000 in a savings account yielding 5% annually and $100,000 in quality blue Chip stocks yielding 10% if you expect to add $30,000 at the end of each year to your stock before lose how much will you have in your retirement fund when you retire use appendix a and appendix eat answer the question round your answer to the nearest dollar

what rate of return must you earn on your retirement funds if you want to withdraw $102,000 per year for the next 15 years after retiring. use appendix d to answer the question. round your answer to the nearest whole number.

not stock before lose. it's should have said stock portfolio**
not appendix eat. should have said appendix b**

Problem 7-24 Expansion Decisions

Problem 16-14

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 $4,600 per month, and the rent is $2,400 per month. In addition, she must make a tax payment of $14,000 in December. The current cash on hand (on December 1) is $650, 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 $100,000.

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

I. Collection and Purchases

b. 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.)

Please, show the calculation if you can (have time). Thank you.