Use the following information for the next three questions: You have $20,000 available to invest in the market portfolio, which has an expected return of 9% and the risk-free asset, which returns 3%: 18. How would you use your available funds to invest in the market portfolio and the risk-free asset to achieve a beta of 0.9? How much money would you invest in the market? A) $18,000 B) $2,000 C) $4,300 D) $2,180 19. What is the expected return of the portfolio constructed in part a? A) 8.4% B) 6.0% C) 9.0% D) 8.2% 20. If the volatility of the market portfolio is 35%, what is the volatility of the portfolio constructed in part a.? A) 9.9% B) 9.0% C) 28.9% D) 31.5%

Jasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of $70,000 per year for 8 years. At the beginning of the project, inventory will decrease by $28,800, accounts receivables will increase by $27,400, and accounts payable will increase by $19,800. At the end of the project, net working capital will return to the level it was prior to undertaking the new project. The initial cost of the molding machine is $297,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating an aftertax cash flow of $80,000. What is the net present value of this project given a required return of 11.6 percent?

2. Determinants of market interest rates

Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic:

Suppose Potter Ltd. just issued a dividend of $1.82 per share on its common stock. The company paid dividends of $1.36, $1.46, $1.53, and $1.68 per share in the last four years, respectively. If the stock currently sells for $55, what is your best estimate of the company’s cost of equity capital using arithmetic and geometric growth rates? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

4. Carolina issued a 25-year semi-annual non-callable bond five years ago. Bond has a $1,000 face value, coupon rate of 8% and it currently sells for $925. Carolina needs to issue 20-year semi-annual bond. New bond will be non-callable and is expected to get the same credit rating as outstanding bond issue. If Carolina wants to issue and sell new bond at par, find approximate coupon rate that needs to be assigned to the bond. (Hint: similar bonds/notes should be providing approximately same returns).

One year​ ago, your company purchased a machine used in manufacturing for $115000. You have learned that a new machine is available that offers many advantages and you can purchase it for $ 165000 today. It will be depreciated on a​ straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin​ (revenues minus operating expenses other than​ depreciation) of $45000 per year for the next 10 years. The current machine is expected to produce a gross margin of $ 22000 per year. The current machine is being depreciated on a​ straight-line basis over a useful life of 11​ years, and has no salvage​ value, so depreciation expense for the current machine is $ 10455 per year. The market value today of the current machine is $60000. Your​ company's tax rate is 42%​, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its​ year-old machine?

The NPV of replacing the​ year-old machine is ​$____. ​(Round to the nearest​ dollar.)

A bond has a $1,000 par value, 15 years to maturity, and a 8% annual coupon and sells for $1,080. What is its yield to maturity (YTM)? Round your answer to two decimal places. 7.12 % Assume that the yield to maturity remains constant for the next 2 years. What will the price be 2 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.

Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.7 on the market index. Firm-specific returns all have a standard deviation of 35%.

Suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +2.6%, and the other half have an alpha of −2.6%. Suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha stocks, and shorts $1 million of an equally weighted portfolio of the negative alpha stocks.

a. What is the expected profit (in dollars) and standard deviation of the analyst’s profit?

b. How does your answer change if the analyst examines 40 stocks instead of 20 stocks? 80 stocks?

Suppose that there are two independent economic factors, F₁ and F₂. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 35%. Portfolios A and B are both well-diversified with the following properties:

What is the expected return-beta relationship in this economy? Calculate the risk-free rate, r_f, and the factor risk premiums, RP₁ and RP₂, to complete the equation below. (Do not round intermediate calculations. Round your answers to two decimal places.)

E(r_P) = r_f + (β_P1 × RP₁) + (β_P2 × RP₂)

Cost of debt using both methods​ (YTM and the approximation​ formula)   ​Currently, Warren Industries can sell 10-year​, $1,000​-par-value bonds paying annual interest at a 8​% coupon rate. Because current market rates for similar bonds are just under 8​%, Warren can sell its bonds for $990 ​each; Warren will incur flotation costs of ​$35 per bond. The firm is in the 27​% tax bracket.

a.  Find the net proceeds from the sale of the​ bond, N Subscript d.

b.  Calculate the​ bond's yield to maturity (YTM​) to estimate the​ before-tax and​ after-tax costs of debt.

c.  Use the approximation formula to estimate the​ before-tax and​ after-tax costs of debt.

Your company has been doing​ well, reaching $ 1.1 million in​ earnings, and is considering launching a new product. Designing the new product has already cost $ 510 comma 000. The company estimates that it will sell 792 comma 000 units per year for $ 2.98 per unit and variable​ non-labor costs will be $ 1.05 per unit. Production will end after year 3. New equipment costing $ 1.08 million will be required. The equipment will be depreciated using​ 100% bonus depreciation under the 2017 TCJA. You think the equipment will be obsolete at the end of year 3 and plan to scrap it. Your current level of working capital is $ 293 comma 000. The new product will require the working capital to increase to a level of $ 372 comma 000 ​immediately, then to $ 403 comma 000 in year​ 1, in year 2 the level will be $ 355 comma 000​, and finally in year 3 the level will return to $ 293 comma 000. Your tax rate is 21 %. The discount rate for this project is 10.4 %. Do the capital budgeting analysis for this project and calculate its NPV.

1) what is The capital budgeting analysis for this project ?

2) what is the NPV?

Determine the accumulated value of quarterly deposits which grow by $18 each quarter for 12 years, with a first payment of $310 one quarter from now, if the deposits earn 1.3%/year compounded quarterly.

Debby’s Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $24,400. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby’s cost of capital is 14 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods.
  

  
  
b. What is the expected net present value? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
  

Net present value ____

Cooley Landscaping needs to borrow $32,000 for a new​ front-end dirt loader. The bank is willing to loan the money at 9% interest for the next 10 years with annual, semiannual, quarterly or monthly payments. What are the different payments that Cooley Landscaping could choose for these different payment​ plans? What is​ Cooley's payment for the loan at 9​% interest for the next 10 years with annual ​payments?

.You own a bond that pays $120 in annual​ interest with a $1,000 par value. It matures in 20 years. Your required rate of return is 11 percent.

a. Calculate the value of the bond.

b. How does the value change if your required rate of return​ (1) increases to 16 percent or​ (2) decreases to 6 ​percent?

c. Explain the implications of your answers in part (b​) as they relate to interest rate​ risk, premium​ bonds, and discount bonds.

d. Assume that the bond matures in 5 years instead of 20 years. Recompute your answers in part ​(b​).

e. Explain the implications of your answers in part ​(d​) as they relate to interest rate​ risk, premium​ bonds, and discount bonds.