​(Cost of​ short-term bank loan​) On July​ 1, 2015, the Southwest Forging Corporation arranged for a line of credit with the First National Bank​ (FNB) of Dallas. The terms of the agreement call for a ​$110 comma 000 maximum loan with interest set at 2 percent over prime. In​ addition, the firm has to maintain a 20 percent compensating balance in its demand deposit account throughout the year. The prime rate is currently 12 percent. Note​: Interest is not paid in advance​ (discounted).
a. If Southwest normally maintains a ​$22 comma 000 to ​$33 comma 000 balance in its checking account with FNB of​ Dallas, what is the effective cost of credit under the​ line-of-credit agreement when the maximum loan amount is used for a full​ year?
b. Compute the effective cost of credit if the firm borrows the compensating balance and the maximum possible amount under the loan agreement.​ Again, assume the full amount of the loan is outstanding for a whole year.

Cash conversion cycle​) Historical data for the​ firm's sales, accounts​ receivable, inventories, and accounts payable for the Crimson Mfg. Company​ follow: LOADING.... a. Calculate​ Crimson's days of sales​ outstanding, days of payables​ outstanding, and days of sales in inventory for each of the 5 years. ​(Assume a​ 365-day year. Hint​: Assume that the​ firm's cost of goods sold equals​ 70% of​ sales.) What has Crimson accomplished in its atempts to better manage its investments in account receivable and​ inventory? b. Calculate​ Crimson's cash conversion cycle for each of the 5 years. Evaluate the​ firm's overall management of its working capital. Assume a​ 365-day year.   

2011   2012   2013   2014   2015
Sales   2,861   3,487   5,264   7,705   12,326
Receivables   410   527   728   901   1,425
Acounts payable   270   454   475   1,045   1,606
Inventories   220   315   414   249   257

1. Tables below shows the standard deviations over the last five years and the correlations between the returns of the stocks and the market.

1. Calculate the CAPM beta for each stock. b. Which stock had the greater total risk? Explain. c. Which stock had the greater market risk? Explain. d. Which stock had the greater idiosyncratic (non-market) risk? Explain

8-8

Cash Budgeting

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently run out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,000 per month, and the rent is $1,800 per month. In addition, she must make a tax payment of $13,000 in December. The current cash on hand (on December 1) is $300, but Koehl has agreed to maintain an average bank balance of $7,000 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $160,000.

1. Prepare a cash budget for December, January, and February.

   I. Collections and Purchases:
   	December	January	February
   Sales	$	$	$
   Purchases	$	$	$
   Payments for purchases	$	$	$
   Salaries	$	$	$
   Rent	$	$	$
   Taxes	$	---	---
   Total payments	$	$	$
   Cash at start of forecast	$	---	---
   Net cash flow	$	$	$
   Cumulative NCF	$	$	$
   Target cash balance	$	$	$
   Surplus cash or loans needed	$	$	$

   
   
2. Suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)
   $

A wine lover has decided to start a winery. The initial investment will be $5 million on Day 1. The winery will require an additional $1 million dollars investment at very beginning Year 1. The vines will mature over five years. Beginning at the end of year 6, the winery is expected to produce net cash inflows of $2 million, 4 mil in year 7, 6 mil in year 8, 8 mil in year 9 and 10 mil in year 10. What is the NPV, IRR, and Payback (nondiscounted and discounted) assuming a discount rate of 15 percent? Please give IRR, NNPV, Payback Period, Discount Payback Period (show formulas please)

Problem 13-20 Jensen's Alpha (LO1, CFA7)

You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.95.

Calculate Jensen’s alpha for the fund, as well as its information ratio. (Do not round intermediate calculations. Enter the alpha as a percent rounded to 2 decimal places. Round the ratio to 4 decimal places.)

Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$261,103 –$15,350 1 26,600 5,181 2 51,000 8,059 3 51,000 13,055 4 392,000 8,690 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A? b. What is the payback period for Project B? c. What is the discounted payback period for Project A? d. What is the discounted payback period for Project B? e. What is the NPV for Project A? f. What is the NPV for Project B ? g. What is the IRR for Project A? h. What is the IRR for Project B? i. What is the profitability index for Project A? j. What is the profitability index for Project B?

1. You have just landed a job with a prestigious venture capital firm and will be making a great salary in the Spring. Your recent ambition to own a nice Rolex Watch will now be possible. You find that the watch is currently priced at $50,000 for a limited time and you won’t have access to your huge $100,000 signing bonus until 4 months from now. Although you do not have the cash to buy the watch, the dealer doesn’t want to lose a sure sale. He is therefore willing to quote you a guaranteed price for the watch 4 months from now if agree to purchase the watch today.   The reason he is willing to do that is because he can book the sale for accounting purposes today as long as the deal is signed and both parties are obligated to the transaction.
2. 1. a. If the dealer quotes you a price of $54,000 (and is willing to buy or sell forward at this price), is there an opportunity to make a zero investment profit and if so how would you specifically do so and how much would the profit would you make? Assume that you could borrow or lend from a bank at the 12% mentioned in part a) above.
   2. b. If the appropriate borrowing rate for a Rolex loan is 12%, what price does he quote today to transact 4 months from now? Assume that any borrowing or investing associated with the Rolex transaction must be related to the 12% loan rather than at the risk-free rate. Also assume that the dealer’s spot and forward prices are good for buying or selling at those prices.

Solo Corp. is evaluating a project with the following cash flows: Year Cash Flow 0 –$12,000 1 5,800 2 6,500 3 6,200 4 5,100 5 –4,300 The company uses a disount rate of 11 percent and a reinvestment rate of 8 percent on all of its projects. Calculate the MIRR of the project using all three methods using these interest rates.

a. MIRR using the discounting approach.

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, g_L, 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.

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?

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.

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?

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.