KDV, Ltd., is a Canadian company. It can borrow or lend funds in
Canada at an interest rate of 3.82%. KDV, Ltd., also has operations
in Brazil where it can borrow or lend funds at an interest rate of
7.44%. The spot exchange rate between the Brazilian Real and the
Canadian Dollar is 4.1792 Brazilian Reals per Canadian Dollar. The
360-day forward exchange rate is 4.3594 Brazilian Reals per
Canadian Dollar. By borrowing 100,000.0000 of one currency, determine an
arbitrage that will make KDV a profit.

Questions:

1. Which country (1=Canada, 2= Brazil) would KDV borrow this money
to make this arbitrage profit?

2. When KDV converts this money to the other country?s currency,
how much of this other country?s currency would KDV receive?
3. Units for #2's answer: (1 = Canadian $s, 2 Brazilian Reals)

4. Should KDV buy or sell a 360-day forward contract at time 0?
(1 = buy, 2 = sell)

5. For how many Canadian $s should KDV?s forward contract be for?

6. KDV should then lend this money in this other country. In one
year, how much will KDV receive from the loan they made?
7. Units for #6's answer: (1 = Canadian $s, 2 Brazilian Reals)

8. In one year, after KDV receives their loan plus interest, when
KDV converts these proceeds to the original country?s currency,
how much of the original country?s currency will KDV receive?
9. Units for #8's answer: (1 = Canadian $s, 2 Brazilian Reals)

10. In one year, how much will KDV have to pay for principal and
interest on the funds they borrowed?
11. Units for #10's answer: (1 = Canadian $s, 2 Brazilian Reals)

12. Arbitrage Profit = ???? amount
13. Units for #12's answer: (1 = Canadian $s, 2 Brazilian Reals)

Your firm will issue 10-year bonds to raise $10 million. You will either (a) issue regular coupon bonds which have a 6% coupon rate and make annual payments or (b) issue zero coupon bonds which make annual payments. Both options will have a YTM of 8%. What is your firm’s total repayment 10 years from now if they went with option (a)?

I got 12244060, I want to see if this correct. Thank you

Problem 12-02
AFN equation

Broussard Skateboard's sales are expected to increase by 20% from $7.8 million in 2016 to $9.36 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 3%, and the forecasted payout ratio is 60%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
$

After starting your first full-time job out of college, you decide to buy a new car for $12,000. Using Excel, create a complete amortization table for this car-loan: You make 36 equal end- of- month payments. The discount rate is 7.25% compounded monthly. How much would you owe after the 15th payment is made?

How can you explain the Sub-prime mortgage by the twin- deficit? Include 4 graphs regarding the personal saving, national saving, budget deficit, and investment in your answer.

A corporate bond with a coupon rate of 7.2 percent has 18 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.9 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 9.2 percent.

What will be the change in the bond’s price in dollars?

What will be the change in the percentage?

2. Net present value (NPV)

The capital budgeting process is comprehensive and is based on certain assumptions, models, and benchmarks. This process often begins with a project analysis. Generally, the first step in a capital budgeting project analysis—which occurs before any evaluation method is applied—involves estimating the project’s expected cash flows   .

Evaluating cash flows with the NPV method

The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions.

Consider this case:

Suppose Fuzzy Button Clothing Company is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,750,000. The project is expected to generate the following net cash flows:

Fuzzy Button Clothing Company’s weighted average cost of capital is 8%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? (Note: Do not round your intermediate calculations.)

a. -$4,059,142

b. -$1,309,142

c. $1,440,858

d. -$859,142

Making the accept or reject decision

Fuzzy Button Clothing Company’s decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the NPV method, it should   project Beta.

Suppose your boss has asked you to analyze two mutually exclusive projects—project A and project B. Both projects require the same investment amount, and the sum of cash inflows of Project A is larger than the sum of cash inflows of project B. A coworker told you that you don’t need to do an NPV analysis of the projects because you already know that project A will have a larger NPV than project B. Do you agree with your coworker’s statement?

No, the NPV calculation will take into account not only the projects’ cash inflows but also the timing of cash inflows and outflows. Consequently, project B could have a larger NPV than project A, even though project A has larger cash inflows.

No, the NPV calculation is based on percentage returns, so the size of a project’s cash flows does not affect a project’s NPV.

Yes, project A will always have the largest NPV, because its cash inflows are greater than project B’s cash inflows.

Weismann Co. issued 14-year bonds a year ago at a coupon rate of 10 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 9 percent, what is the current bond price?

We assume that the company you selected is considering a new project. The project has 8 years’ life. This project requires initial investment of $380 million to purchase equipment, and $30 million for shipping & installation fee. The fixed assets fall in the 7-year MACRS class. The salvage value of the fixed assets is 10.5% of the purchase price (including the shipping & installation fee). The number of units of the new product expected to be sold in the first year is 1,500,000 and the expected annual growth rate is 5.5%. The sales price is $255 per unit and the variable cost is $190 per unit in the first year, but they should be adjusted accordingly based on the estimated annualized inflation rate of 2.2%. The required net operating working capital (NOWC) is 9.5% of sales. Use the corporate tax rate obtained in Step (4) for the project. The project is assumed to have the same risk as the corporation, so you should use the WACC you obtained from prior steps as the discount rate. Note: you may revise the partial model in the file Ch11 P18 Build a Model.xls on the website of the textbook (also posted in this final project learning module in Blackboard) for capital budgeting analysis, but you are NOT required to strictly follow the partial model. Actually, you are encouraged to build a better model by yourself. - Compute the depreciation basis and annual depreciation of the new project. (You can refer to Table 11A-2 MACRS allowances on pp.496 in the textbook) - Estimate annual cash flows for 8 years. - Draw a time line of the cash flows. WACC = 7.20% Corporate Tax Rate = 18.30%

15. Imagine you are investing for one year and are considering three different bonds, each with a $1000 face value: A one-year treasury bill. A two-year zero coupon Treasury. A ten-year zero coupon Treasury. Today, each bond has a 4% yield to maturity. For each of the following scenarios, compute the return you'd get on each of the three bonds under consideration. A) Yields increase to 5%. B) Yields fall to 2%. Show all calculations.

17. You have a 2% bond paying annual coupons, 3 years until maturity with $1000 face value. Yield to maturity is 2.5%. What is the duration of the bond? Show all calculations.

18. Suppose there is another bond which pays annual coupons of 5% and has 3 years to maturity with a $1000 face value. Yield to maturity is 2.5%. Is the duration of this bond higher or lower than the bond in question 17?

You are planning to make monthly deposits of $475 into a retirement account with an APR of 10 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be just after three months. Round your answer to the nearest dollar.

Then using the same numbers calculate what it will be after just 2 months

The Bruin's Den Outdoor Gear is considering a new 7-year project to produce a new tent line. The equipment necessary would cost $1.59 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 26,000 tents per year at a price of $69 and variable costs of $29 per tent. The fixed costs will be $445,000 per year. The project will require an initial investment in net working capital of $213,000 that will be recovered at the end of the project. The required rate of return is 11.2 percent and the tax rate is 34 percent. What is the NPV?

Multiple Choice

• $816,841

• $1,186,611

• $660,072

• $510,939

• $548,380