Crisp Cookware's common stock is expected to pay a dividend of $1.75 a share at the end of this year (D1 = $1.75); its beta is 0.7. The risk-free rate is 5.6% and the market risk premium is 4%. The dividend is expected to grow at some constant rate, gL, and the stock currently sells for $80 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3 years (i.e., what is )? Do not round intermediate calculations. Round your answer to the nearest cent.
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The portfolio with the highest volatility has the worst correlation coefficient for diversification (in other words, the highest vol portfolio also has the most positive correlation coefficient). True? or False?
Is the lowest risk portfolio also the portfolio with the most diversification? In other words is the lowest risk portfolio also the most zero to negative correlation coefficient pair. True ? or False?
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A T-bond with semi-annual coupons has a coupon rate of 6%, face value of $1,000, and 2 years to maturity. If its yield to maturity is 4%, what is its Macaulay Duration? Answer in years, rounded to three decimal places. Please show your work. Thank you.
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Intro It is the end of 2019. You plan to complete a Ph.D. in 5 years. Your favorite uncle has promised to help you with your school expenses by giving you the following amounts for Christmas: Year 2020 2021 2022 2023 2024 Cash flow 1,000 1,600 1,800 2,000 2,200 Your uncle is fairly wealthy and very reliable. You currently have $10,000 in a savings account paying an annual interest rate of 10%. Attempt 1/5 for 10 pts.
Part 1 Create an Excel spreadsheet showing the years and cash flows as in the table above, then add a row that shows the number of years from now and another row that shows the present value of each cash flow. What is the sum of present values? Hint: do not hardcode the discount rate into your formulas. Instead, keep it in a separate cell and refer back to it. You'll be asked to change in discount rate in parts 5 to 8. Attempt 1/5 for 10 pts.
Part 2 You also want to know how much each gift will be worth in 2024 if you save it. Add another row to your spreadsheet and calculate the value of each cash flow in 2024. What is the sum of all future values? Attempt 1/5 for 8 pts.
Part 3 What is the present value of the sum of future values calculated in the previous part? Attempt 1/5 for 10 pts.
Part 4 Now assume that the interest rate is 8%. What is the present value of all the gifts? Attempt 1/5 for 10 pts.
Part 5 Still assume that the interest rate is 8%. What is the future value of all the gifts? Attempt 1/5 for 10 pts.
Part 6 Now assume that the interest rate is 14%. What is the present value of all the gifts? Attempt 1/5 for 10 pts.
Part 7 Still assume that the interest rate is 14%. What is the future value of all the gifts?
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At the beginning of 2020, Cameron Company's retained earnings was $212,000. For 2020, Cameron has calculated its pretax income from continuing operations to be $120,000. During 2020, the following events also occurred:
1. During July, Cameron sold Division M (a component of the company). The book values of Division M’s assets and liabilities are $300,000 and $100,000, respectively, at the time of
sale. The company sold Division M for cash $159,500. During 2020 before its sale, Division M recognized revenues of 100,000 and expenses of 61,000 (excluding income tax expense).
2. Cameron had 21,000 shares of common stock outstanding during all of 2020. It declared and paid a $1 per share cash dividend on this stock.
3. Cameron also paid $7,500 cash dividend to its preferred stockholders.
Required:
Assuming that all the “pretax” items are subject to a 21% income tax rate:
1. Complete the lower portion of Cameron's 2020 income statement, beginning with “Pretax
Income from Continuing Operations.”
2. Prepare an accompanying retained earnings statement.
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The real risk-free rate, r*, is 1.55%. Inflation is expected to average 2.4% a year for the next 4 years, after which time inflation is expected to average 4.9% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 11.7%, which includes a liquidity premium of 0.55%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.
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Explain the difference between the primary and secondary markets. What roles do banks play in these markets?
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A US firm has Euro receivables of E100,000,000 from Germany in six months. It decides to use options to hedge the receivables. Put options with exercise price $1.65 and premium $0.04 are available.
Suppose the firm fully hedges it’s receivables (that is a fall in the value of euro below the strike price will not reduce the net cash flow to the firm).
The spot rate in six months is E1 for $1.40. What will be the net amount the firm will receive from the put options (put payoff minus premium)?
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We have the spot rate for Japanese Yens to be Y121 per $1. The nominal (riskless) rates in Japan and US are 0.05 and .07 respectively. The forward rate is Y118 per $1. What nominal (riskless) rate of return for $ investments can an US investor earn by benefitting from the above rates?
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Problem 4-04
| PRICE | SHARES | |||||||||||
| Company | A | B | C | A | B | C | ||||||
| Day 1 | $12 | $24 | $54 | 500 | 380 | 250 | ||||||
| Day 2 | 10 | 20 | 60 | 500 | 380 | 250 | ||||||
| Day 3 | 14 | 48 | 56 | 500 | 190a | 250 | ||||||
| Day 4 | 15 | 50 | 27 | 500 | 190 | 500b | ||||||
| Day 5 | 11 | 48 | 28 | 500 | 190 | 500 | ||||||
| aSplit at close of day 2. bSplit at close of day 3. |
||||||||||||
Calculate a Dow Jones Industrial Average for days 1 through 5. Do not round intermediate calculations. Round your answers to three decimal places.
Day 1:
Day 2:
Day 3:
Day 4:
Day 5:
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USE THE FOLLOWING INFORMATION ON PROBLEMS 1-5.
Vulpis Inc. has just made an issue of 20-year maturity $1,000 par value bonds with a 9% coupon rate. The bond is currently selling in the market for $1,200.
If the required rate of return on comparably risky bonds is 6%, what is the intrinsic value of Vulpis Inc. bonds?
|
$1,401.04 |
||
|
$1,346.72 |
||
|
$1,244.10 |
||
|
$1,198.51 |
Vulpis Inc. has just made an issue of 20-year maturity $1,000 par value bonds with a 9% coupon rate. The bond is currently selling in the market for $1,200.
What is the bond's YTM?
|
4.55% |
||
|
5.92% |
||
|
7.11% |
||
|
9.20% |
Vulpis Inc. has just made an issue of 20-year maturity $1,000 par value bonds with a 9% coupon rate. The bond is currently selling in the market for $1,200.
Suppose that the overall required rate of return on all bonds in the market goes up by 1% immediately after Vulpis Inc. issues their bonds. If the market now requires 7% on bonds, what is the intrinsic value of Vulpis Inc. bonds?
|
$1,031.17 |
||
|
$1,157.49 |
||
|
$1,213.55 |
||
|
$1,343.08 |
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Breckinridger Corp. has a debt-equity ratio of .80. The company is considering a new plant that will cost $109 million to build. When the company issues new equity, it incurs a flotation cost of 7.9 percent. The flotation cost on new debt is 3.4 percent. a. What is the initial cost of the plant if the company raises all equity externally? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar amount, e.g., 1,234,567.) b. What is the initial cost of the plant if the company typically uses 55 percent retained earnings? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar amount, e.g., 1,234,567.) c. What is the initial cost of the plant if the company typically uses 100 percent retained earnings? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar amount, e.g., 1,234,567.)
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Problem 4-01
You are given the following information regarding prices for a sample of stocks.
| PRICE | ||||||
| Stock | Number of Shares | T | T + 1 | |||
| A | 1,900,000 | $68 | $84 | |||
| B | 12,000,000 | 24 | 34 | |||
| C | 28,000,000 | 23 | 28 | |||
Construct a price-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1. Do not round intermediate calculations. Round your answer to two decimal places.
%
Construct a value-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1. Do not round intermediate calculations. Round your answer to two decimal places.
%
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elliott's cross country transportation services has a capital structure with 25% debt at a 9% interest rate. Its beta is 1.6 , the risk-free rate is 4%, and the market risk preimum is 7%. Elliott's combined federal-plus-state tax rate is 25%
What is the cost of equity ?
What is the WAAC?
What is its unlevered cost of equity?
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Ziege Systems is considering the following independent projects for the coming year:
Project |
Required Investment |
Rate of Return |
Risk |
| A | $4 million | 14.75% | High |
| B | 5 million | 12.25 | High |
| C | 3 million | 10.25 | Low |
| D | 2 million | 9.5 | Average |
| E | 6 million | 13.25 | High |
| F | 5 million | 13.25 | Average |
| G | 6 million | 7.5 | Low |
| H | 3 million | 11.75 | Low |
Ziege's WACC is 10.75%, but it adjusts for risk by adding 2% to the WACC for high-risk projects and subtracting 2% for low-risk projects.
Which projects should Ziege accept if it faces no capital constraints?
| Project A | -Select-AcceptRejectItem 1 |
| Project B | -Select-AcceptRejectItem 2 |
| Project C | -Select-AcceptRejectItem 3 |
| Project D | -Select-AcceptRejectItem 4 |
| Project E | -Select-AcceptRejectItem 5 |
| Project F | -Select-AcceptRejectItem 6 |
| Project G | -Select-AcceptRejectItem 7 |
| Project H | -Select-AcceptRejectItem 8 |
If Ziege can only invest a total of $13 million, which projects should it accept?
| Project A | -Select-AcceptRejectItem 9 |
| Project B | -Select-AcceptRejectItem 10 |
| Project C | -Select-AcceptRejectItem 11 |
| Project D | -Select-AcceptRejectItem 12 |
| Project E | -Select-AcceptRejectItem 13 |
| Project F | -Select-AcceptRejectItem 14 |
| Project G | -Select-AcceptRejectItem 15 |
| Project H | -Select-AcceptRejectItem 16 |
If Ziege can only invest a total of $13 million, what would be the dollar size of its capital budget? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places.
$ million
Suppose Ziege can raise additional funds beyond the $13 million, but each new increment (or partial increment) of $5 million of new capital will cause the WACC to increase by 1%. Assuming that Ziege uses the same method of risk adjustment, which projects should it now accept?
| Project A | -Select-AcceptRejectItem 18 |
| Project B | -Select-AcceptRejectItem 19 |
| Project C | -Select-AcceptRejectItem 20 |
| Project D | -Select-AcceptRejectItem 21 |
| Project E | -Select-AcceptRejectItem 22 |
| Project F | -Select-AcceptRejectItem 23 |
| Project G | -Select-AcceptRejectItem 24 |
| Project H | -Select-AcceptRejectItem 25 |
What would be the dollar size of its capital budget? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places.
$ million
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