You have to estimate the expected exchange rates one year from now between your home currency and the other currencies of the major other countries that you deal with in terms of both imports and exports. The reason is that increases in the values of other currencies compared to the U.S. Dollar may impact your imports negatively, whilst it may on the other hand, be good for exports. To do this estimate, you obtain the following spot exchange rate information:

You also obtain the following rates that you regard as similar to the annual risk free rates applying in the countries:

Your focus is presently to estimate the 12 month forward rates in order to consider the impact that it will have on the import and export sales of the company. Calculate the forward rates of the $ in terms of all the currencies by using simple interest rate parity e.g. 10% annual interest rate = 10/2 = 5% for six months. Do not apply effective annual interest rate compounding. Show all your workings in table 1 on the separate answer sheet by using the correct formula provided in your formula sheet.

Provide an indication about what will happen to the value of the US$ based on the forward exchange rate calculations by calculating the expected discount/premium of it for each of the currencies in Table 2 on the separate answer sheet. Also show whether the impact will be positive (P) or negative (N) for imports and exports. For example:

Table 1: Calculation of 12 month forward rates using the simple interest rate parity principle

Table 2: Discounts/Premium of US$

Question 1

The market index experienced the following returns over the first 6 months of this year:

Month Return Month Return
January 0.68 April -1.71
February 5.43 May -2.44
March 1.12 June 3.58

What is the average return and standard deviation of returns over this six-month period?

Group of answer choices

1.33%, 2.75%

1.11%, 3.02%

1.11%, 2.33%

2.49%, 2.33%

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Question 2

Which of the following investments is clearly preferred to the others?

Investment Return Standard Deviation
A 18% 20%
B 20% 20%
C 20% 18%

Group of answer choices

Investment B.

Investment C.

Investment A.

Cannot be determined without information regarding the risk aversion of the investor.

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Question 3

What does beta measure?

Group of answer choices

The amount of credit risk the stock is exposed to

The amount of market risk the stock is exposed to

The amount of unique risk the stock is exposed to

The amount of business risk the stock is exposed to

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Question 4

Orchestral Tissues Ltd has a beta of 1.35. The risk-free rate of return is 7 percent and return on the market portfolio is 11.5 percent. Using the CAPM, what is the required return on this Orchestral Tissues shares?

Group of answer choices

30.90%

13.08%

15.78%

8.94%

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Question 5

In calculating the cost of capital for an average firm, which of the following statements is true?

Group of answer choices

The cost of a firm's retained earnings is less than the cost of its bonds.

The cost of a firm's ordinary shares is greater than the cost of its bonds.

The cost of a firm's preference shares is greater than the cost of its ordinary shares.

The cost of a firm's bonds is greater than the cost of its ordinary shares.

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Question 6

Which of the following is a correct formula for calculating the cost of capital?

Group of answer choices

WACC = weighted cost of debt + weighted cost of preference shares + weighted cost of ordinary shares

WACC = (after-tax cost of debt + cost of preference shares + cost of ordinary shares )/3

WACC = weighted after-tax cost of debt + weighted cost of preference shares + weighted cost of ordinary shares

WACC = weighted after-tax cost of debt + weighted after-tax cost of preference shares + weighted after-tax cost of ordinary shares

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Question 7

The last paid dividend is $2 for a share of ordinary shares that is currently selling for $20. What is the cost of ordinary equity if the long-term growth rate in dividends for the firm is expected to be 8%?

Group of answer choices

18.8%

12.8%

16.8%

14.8%

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Question 8

Based on current market values, Shawhan Supply’s capital structure is 30% debt, 20% preference shares, and 50% ordinary shares. When using book values, capital structure is 25% debt, 10% preference shares, and 65% ordinary shares. The required return on each component is: debt—10%; preference shares—11%; and ordinary shares—18%. The marginal tax rate is 40%. What rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged?

Group of answer choices

14.3%

10.0%

13.0%

18.0%

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Question 9

________ measures the risk of a capital budgeting project by estimating the NPVs relating to a best case, base case and worst case cash flow estimates.   

Group of answer choices

Monte Carlo analysis

Scenario analysis

Sensitivity analysis

Multiple regression analysis

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Question 10

Jolly Roger Beverages Pty Ltd is considering purchasing one of two new rum fermenting machines to use at its Nowra distillery. The MegaDistiller 3000 costs $390,000 and is expected to have operating costs $33,000 per year for five years at which time it is considered worthless. The LiteBrewer 409 costs $350,000 and is expected to have operating costs of $29,500 per year for four years at which time it is considered worthless. Both machines perform the same function. The appropriate discount rate for the company is 10%. Based on an NPV analysis what should Jolly Roger Beverages do?

Group of answer choices

We do not have any information on revenues and therefore cannot make a decision.

Both have negative NPVs and therefore both should be rejected.

The company should buy the LiteBrewer 409.

The company should buy the MegaDistiller 3000.

Much appreciated!

A well-known reputable supplier of integrated heart monitoring devices is currently debating whether to expand its sales overseas. While the firm expects an extra $14,440,000 in sales if it enters foreign markets, it also knows that 8% of its sales will ultimately be uncollectible. In addition, selling costs will be 7% on all new sales and the firm's production costs are 60% of sales. The tax rate is 30%. (PLEASE SHOW YOUR WORK).

a) Calculate supplier additional net income from the new sales.

Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $6,900 and sell its old washer for $2,100. The new washer will last for 6 years and save $1,900 a year in expenses. The opportunity cost of capital is 18%, and the firm’s tax rate is 21%.

a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. (Negative amounts should be indicated by a minus sign.)

b. What is project NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $46,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $11,500. The grill will have no effect on revenues but will save Johnny’s $23,000 in energy expenses. The tax rate is 30%.

Required:

a. What are the operating cash flows in each year?
b. What are the total cash flows in each year?
c. Assuming the discount rate is 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

PLEASE FILL UP THE TABLE BELOW

You are a business development officer of ABC bank. An existing client of yours told you about Mr Mark Angelo who is presently banking with MMM bank. You were told that Mr Angelo is a very rich and influential client who could be approached to move his business to your bank should you be able to offer him favourable rates. During your initial contact with Mr Angelo he indicated that he is not looking for another banker but that you should provide him with a proposal which he can consider.

MARK ANGELO

STATEMENT OF FINANCIAL POSITION AS AT 1 SEPTEMBER 20XX

You as a banker identified three types of finance that can be taken over by your bank if he can be convinced to change his bank:

• Mortgage bonds over his fixed properties
• Finance (instalment sale agreements) over his vehicles
• Overdraft facility.

You also identified the residential properties and vineyard farm, the vehicles and the fixed deposit as the most suitable types of collateral. Answer the following questions for each of the three prominent types of collateral identified:

i.              Can the bank easily obtain effective control or custody over the asset?

                ii.             Can the bank realise the asset quickly and with little expense?

                iii.            What is the possibility that the collateral can become worthless?

Complete the table to answer this question. Substantiate your answers with good reasons.

Suppose the returns on an asset are normally distributed. The historical average annual return for the asset was 7.4 percent and the standard deviation was 16.4 percent. a. What is the probability that your return on this asset will be less than –6.1 percent in a given year? Use the NORMDIST function in Excel® to answer this question. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What range of returns would you expect to see 95 percent of the time? (Enter your answers for the range from lowest to highest. 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. What range of returns would you expect to see 99 percent of the time? (Enter your answers for the range from lowest to highest. 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.)

Why can the empirical evidence for book-to-market and size effects be treated as a violation to the CAPM?

Margarite's Enterprises is considering a new project. The project will require $325,000 for new fixed assets, S160,000 for additional inventory and $ 35,000 for additional accounts receivable. Short term debt is expected to increase by $ 100,000 and long- term debt is expected to increase by $ 300,000. The project has a 5- year life. The fixed assets will be depreciated straight-line io a zero book value over the life of the project . At the end of the project , the fixed assets can be sold for 25% of their original cost. The net working capital returns to its original level at the end of the project . The project is expected to generate annual sales of $ 554,000 and costs of $ 430,000 . The tax rate is 35 % and the required rate of return is 15%.

A- What is the amount of the after-tax cash flow from the sale of the fixed assets at the end of this project?

B- What is the cash flow recovery from net working capital at the end of this project?

C- What is the annual OCF?

can you explain without excel specially C

evenue forecasting is an extremely important function of the budget process. What are some of the reasons forecasting appears to have become more difficult over the past several decades and what are the consequences of (ADDRESS BOTH) underestimating and overestimating revenues.

What caused the changes in Nestle for the past three years? What business decisions may have caused the change?

1. You run an investment advice consulting operation. Vanguard sends you a booklet about their mutual fund investing options. They think you may be interested in a fund that invests only in natural resource companies (primarily oil and gas), a fund that invests in only socially responsible companies or an index fund that mimics the S&P 500. Ten year performance information is as follows:

Natural Resource Fund: Expected Return = 16.2% with standard deviation of 30.2%

Socially Responsible Fund: Expected Return = 4.8% with a standard deviation of 1.5%

S&P 500 Index Fund: Expected Return = 6.1% with a standard deviation of 18.7%

The booklet states that the correlation between the Socially Responsible Fund and the S&P 500 Fund is -.46. The correlation between the S&P 500 and the Natural Resource Fund is .68. The correlation between the Socially Responsible Fund and the Natural Resource Fund is -.07.

Determine the covariance between each pair of funds.

Analyze a set of possible portfolios of pairs of investments. First, analyze portfolios that are half one fund and half another (Example: 50% in S&P 500, 50% in Natural Resource). Repeat this for each 50-50 combination of funds. Second, consider portfolios that are 75% one fund and 25% another.

1. What is the slope of the security market line (SML)? What is the intercept?

2. Describe relationship between a debt ratio and the firm's value?