1. You are trying to estimate Cost of Capital for MGM Enterprises in question 1, and the EV change in question 2, the company that operates in two businesses, with the following breakdown:

The company is trading at its fair value, has no cash and $ 1 billion ($1000 in millions) in debt outstanding. The marginal tax rate is 30%. The risk free rate is 1.5%. ERP, 5.5%. Default risk is 2%

1. Estimate WACC. Hint: first calculate the weighted unleveled beta, then average levered beta for the company.

1. 	MOVIES	CASINOS
   ENTERPRISE VALUE IN MIILIONS	$1500	$1500
   UNLEVERED BETA	0.9	0.6

2. Now assume that MGM plans to sell its Casinos for its fair value, hold half the proceeds as a cash balance and use the remaining half to pay a special dividend. Estimate the value change in the company Hint: First, Estimate the levered beta after the transaction, calculate WACC and then the change in Enterprise Value. Default risk goes up to 3%. The marginal tax rate is 30%. The risk free rate is 1.5%. ERP, 5.5%.

What is the Enterprise Value change due to the restructuring?

Riverbed Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor’s punch press is substantially identical and each has a useful life of 20 years. In addition, Engineering has estimated that required year-end maintenance costs will be $940 per year for the first 5 years, $1,940 per year for the next 10 years, and $2,940 per year for the last 5 years. Following is each vendor’s sales package.

Vendor A: $53,000 cash at time of delivery and 10 year-end payments of $17,520 each. Vendor A offers all its customers the right to purchase at the time of sale a separate 20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one-time initial cost of $10,000.

Vendor B: Forty semiannual payments of $8,980 each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the next 20 years at no extra charge.

Vendor C: Full cash price of $164,000 will be due upon delivery.

Assuming that both Vendors A and B will be able to perform the required year-end maintenance, that Riverbed’s cost of funds is 10%, and the machine will be purchased on January 1, compute the following:

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The present value of the cash flows for vendor A. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

The present value of the cash flows for vendor B. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

The present value of the cash flows for vendor C. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

NABICA Manufacturing sells its finished product for an average of $35 per unit with a variable cost per unit of $21. The company has fixed operating costs of $1,050,000.

(a) Calculate the firm's operating breakeven point in units.

(b) Calculate the firm's operating breakeven point in dollars.

(c) Using 100,000 units as a base, what is the firm's degree of operating leverage?

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon of 9 percent for $1,040. The bond has 18 years to maturity. What rate of return do you expect to earn on your investment? Assume a par value of $1,000. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected rate of return % b1. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bond price $ b2. What is the HPY on your investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) HPY %

A 5-year Treasury bond has a 4.4% yield. A 10-year Treasury bond yields 6.9%, and a 10-year corporate bond yields 8.5%. The market expects that inflation will average 3% over the next 10 years (IP10 = 3%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities: DRP = LP = 0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.What is the yield on this 5-year corporate bond? Round your answer to two decimal places

Write an IPS (Investment Policy Statement for yourself. Please state your investment goals (return and risk) and constraints (time, tax, liquidity, law and uniqueness

can you detail explain how solved: "is just to practice" and make sure I have same answer

You are deputy chief of the Space Federation Force (SFF), which means you do whatever the chief of the SFF says. She says you evaluate at 10% per year unless told otherwise.

Space Fuel Inc. is considering establishing a new propellant depot to provide space vehicles a refueling point in their trek to Mars. If placed in a LaGrange point, the depot could save $50,000K annually. The depot can be constructed for $200,000K today and will be used for a period of 10 years. It has a salvage value of $10,000K at the end of its useful life. The new depot will require an annual maintenance cost of $9,000K. Capital financing is available at _6__% per quater compounded <any value>

Q3.   Prepare a statement of cash flows from the following list of items.

A stock price is currently $200. Over each of the next two six-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 6% per annum with continuous compounding. What is the value of a one-year European call option with a strike price of $200?

How do bond ratings and interest rate spreads on bonds differ? Which measure is considered by many investors to be a more comprehensive measure of risk? Why?

Assume that security returns are generated by the single-index model, Ri = αi + βiRM + ei where Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 2%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security βi E(Ri) σ(ei) A 0.8 10 % 25 % B 1.0 12 10 C 1.2 14 20 a. If σM = 20%, calculate the variance of returns of securities A, B, and C. (Do not round intermediate calculations. Round your answers to the nearest whole number.) b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)

Last year Carson Industries issued a 10-year, 12% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,060 and it sells for $1,150.

1. What are the bond's nominal yield to maturity and its nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.

   YTM:   %

   YTC:   %

   Would an investor be more likely to earn the YTM or the YTC?

   -Select-Since the YTM is above the YTC, the bond is likely to be called.Since the YTC is above the YTM, the bond is likely to be called.Since the YTM is above the YTC, the bond is not likely to be called.Since the YTC is above the YTM, the bond is not likely to be called.Since the coupon rate on the bond has declined, the bond is not likely to be called.Item 3

2. What is the current yield? (Hint: Refer to Footnote 6 for the definition of the current yield and to Table 7.1) Round your answer to two decimal places.

     %

   Is this yield affected by whether the bond is likely to be called?

   1. If the bond is called, the capital gains yield will remain the same but the current yield will be different.
   2. If the bond is called, the current yield and the capital gains yield will both be different.
   3. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different.
   4. If the bond is called, the current yield will remain the same but the capital gains yield will be different.
   5. If the bond is called, the current yield and the capital gains yield will remain the same.

   -Select-IIIIIIIVVItem 5

3. What is the expected capital gains (or loss) yield for the coming year? Use amounts calculated in above requirements for calculation, if required. Negative value should be indicated by a minus sign. Round your answer to two decimal places.

     %

   Is this yield dependent on whether the bond is expected to be called?
   1. The expected capital gains (or loss) yield for the coming year does not depend on whether or not the bond is expected to be called.
   2. If the bond is expected to be called, the appropriate expected total return is the YTM.
   3. If the bond is not expected to be called, the appropriate expected total return is the YTC.
   4. If the bond is expected to be called, the appropriate expected total return will not change.
   5. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called.