2.the stock of Business Adventures sells for $70 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows:

Dividend Stock Price

Boom $2.50 $78

Normal economy 1.50 72

Recession 0.50 66

a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 3%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Your friend is looking for investors in a risky business venture. To convince you to participate, she is offering you a 18% rate of return in your investment. How much should you be willing to invest your friend s company, if she believes that she will be able to pay you the following amounts: $3000 at the end of the first year, $4000 at the end of the second year, and $5000 at the end of years 3, 4, and 5.

Merger Analysis

TransWorld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Georgia Cable Company (GCC), a regional cable company. TransWorld's analysts project the following post-merger data for GCC (in thousand of dollars):

If the acquisition is made, it will occur on January 1, 2015. All cash flows shown in the income statements are assumed to occur at the end of the year. GCC currently has a capital structure of 40% debt, but Trans World would increase that to 50% if the acquisition were made. GCC, if independent, would pay taxes at 20%; but its income would be taxed at 35% if it were consolidated. GCC's current market-determined beta is 1.50, and its investment bankers think that its beta will rise to 1.614 if the debt ratio were increased to 50%. The cost of goods sold is expected to be 80% of sales, but could vary somewhat. Depreciation-generated funds would be used to replace worn-out equipment, so they would not be available to TransWorld's shareholders. The risk-free rate is 8%, and the market risk premium is 4%. Do not round intermediate calculations.

1. What is the appropriate discount rate for valuing the acquisition?
   % (to 2 decimals)

2. What is the continuing value?
   $ thousand (to 1 decimal)

3. What is the value of GCC to TransWorld?
   $ thousand (to 1 decimal)

. Use the following information to calculate your company's expected return State Probability Return Boom 20% 0.34 Normal 60% 0.10 Recession 20% -0.16 Round to two decimal places ANSWER:

1. What is the historical role of investment bankers ? Has this role changed ? Why or why not ?

2.  Evaluate the industry performance of commercial banks and describe their future challenges.

NPV

Your division is considering two projects with the following cash flows (in millions):

1. What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A    $_____ million
   Project B    $_____ million

   What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A    $_____million
   Project B    $_____million

   What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A    $_____million
   Project B    $_____million

2. What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A =_____ %
   Project B =_____ %

   What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A=_____ %
   Project B=_____ %

   What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A=_____ %
   Project B=_____ %

3. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)
   =PROJECT A, B OR NEITHER?

   If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)
   =PROJECT A, B OR NEITHER?

4. If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)
   ==PROJECT A, B OR NEITHER?

You have $100,000 to invest in either Stock D, Stock F, or a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 11.4 percent. If D has an expected return of 13.6 percent, F has an expected return of 9.7 percent, the risk-free rate is 3.8 percent, and you invest $50,000 in Stock D, how much will you invest in Stock F?

You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent is Bella Co., and 30 percent in Edward Resources. What is the expected return of your portfolio if Jacob, Bella and Edward have expected returns of 0.05, 0.13 and 0.18, respectfully? Round to two decimal places.

5. You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent is Bella Co., and 30 percent in Edward Resources. What is the expected return of your portfolio if Jacob, Bella and Edward have expected returns of 0.02, 0.14 and 0.17, respectfully? Round to two decimal places.

You must evaluate a proposal to buy a new milling machine. The base price is $175,000, and shipping and installation costs would add another $6,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $113,750. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $5,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $43,000 per year. The marginal tax rate is 35%, and the WACC is 14%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.

1. How should the $5,000 spent last year be handled?
   1. Last year's expenditure is considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   2. Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   3. The cost of research is an incremental cash flow and should be included in the analysis.
   4. Only the tax effect of the research expenses should be included in the analysis.
   5. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
   
   -Select-IIIIIIIVV

2. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.
   $

3. What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Do not round your intermediate calculations.

   Year 1 $

   Year 2 $

   Year 3 $

4. Should the machine be purchased?
   -Select-YesNo

An asset is purchased on January 1 for $48,700. It is expected to have a useful life of five years after which it will have an expected residual value of $6,800. The company uses the straight-line method. If it is sold for $33,600 exactly two years after it is purchased, the company will record a:

loss of $13,440.

gain of $1,660.

loss of $1,660.

gain of $13,440.

credit to the Vehicles account for $4,170.

loss of $2,040.

gain of $2,040.

credit to Accumulated Depreciation for $9,130.

B. Darin Company purchased a truck and trailer for $54,000. The appraised values of the truck and trailer are $38,000 and $19,000, respectively. What is the amount of the cost that should be assigned to the trailer?

$19,000

$18,000

$16,000

$22,000

Computing Cost of Goods Sold and Ending Inventory.

Bartov Corporation reports the following beginning inventory and purchases for 2017

Bartov sells 600 of these units in 2017. Compute its cost of goods sold for 2017 and the ending inventory reported on its 2017 balance sheet under each of the following inventory costing methods. (Do not round until final answer. Round to the nearest whole number.)