Suppose that the index model for stocks A and B is estimated from excess returns with the following results:

RA = 3.5% + 0.65RM + eA

RB = -1.6% + 0.8RM + eB

σM = 21%; R-squareA = 0.22; R-squareB = 0.14

What is the covariance between each stock and the market index?

Allison and Leslie, who are twins, just received $40,000 each for their 24th birthday. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her "early retirement fund" on her birthday, beginning a year from today. Allison opened an account with the Safety First Bond Fund, a mutual fund that invests in high-quality bonds whose investors have earned 8% per year in the past. Leslie invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors have earned an average of 15% per year in the fund's relatively short history.

1. If the two women’s funds earn the same returns in the future as in the past, how old will each be when she becomes a millionaire? Do not round intermediate calculations. Round your answers to two decimal places.
   Allison:  
   Leslie:  

2. How large would Allison's annual contributions have to be for her to become a millionaire at the same age as Leslie, assuming their expected returns are realized? Do not round intermediate calculations. Round your answer to the nearest cent.

3. Is it rational or irrational for Allison to invest in the bond fund rather than in stocks?

Tolo Co. plans the following repurchases: $10.2 million in one year, nothing in two years, and $19.2 million in three years. After that, it will stop repurchasing and will issue dividends totaling $25.8 million in four years. The total paid in dividends is expected to increase by 3.1% per year thereafter. If Tolo has 2.4 million shares outstanding and an equity cost of capital of 10.9%, what is its price per share today? The stock price will be $ . (Round to the nearest cent.)

1. Your broker offers to sell you for $901.19 a 30-year, $1,000 face value Treasury bond with a 10% coupon rate. The bond pays interest annually. What is the yield to maturity, or expected rate of return, if you pay the asking price?

   		9%
   		10.19%
   		11.89%
   		11.15%
   		13.12%.

1 points   

QUESTION 15

1. What is the most that you would be willing to pay for the above bond if you require a rate of return of 12%?

   		$1,200
   		$1,100
   		$900.09
   		$838.90
   		$799.99.

Only b) in Excel please

Modern Designs is seeking to buy a new wire binding machine in order to improve the throughput of the system. Considerable research into machine suppliers has been conducted, and all except four suppliers have been eliminated from consideration. These include: Beauty Copper (BC), Copper Cut (CC), Advanced Wire (AW), and Wire Cosmetics (WC). The initial cost, maintenance cost and salvage value at year 10 of each machine are illustrated in the following table. i= 1%

a) Calculate the present value of each machine and determine the best economic alternative

b) In addition to economic value of each machine with the weight of 25%, Modern Designs has identified other factors. Each of the factors has been weighted in terms of its importance. Factors and weights are as follows:

Factor 1: Electricity Consumption Rate 20%

Factor 2: Machine Capacity 15%

Factor 3: Safety Features 15%

Factor 4: Delivery and Installation 10%

Factor 5: Return Policy 5%; and

Factor 6: Ease of Working with 10%.

The procurement department has researched and provided ratings on a 10-point maximum scale for each factor. These are given in the following table:

Use the weighted factor comparison method to determine the score for each of the potential machines.    

What is the imputed value, in dollars, for the differences in Electricity Consumption Rate, and Return policy between machines BC and CC?

Only Part c and d (Plan 3 & Plan 4) Using Excel only

J&J Cattle has purchased a quarter section of land for $160,000. They make a down payment of $20,000, and the remainder of the purchase price ($140,000) is financed at 11 percent compounded quarterly with quarterly payments over 2 years. Develop an Excel® table to illustrate the payment amounts and schedule for the loan, assuming payback follows

Plan 1: Pay the accumulated interest at the end of each interest period and repay the principal at the end of the loan period.

Plan 2: Make equal principal payments, plus interest on the unpaid balance at the end of the period.

Plan 3: Make equal end-of-period payments.

Plan 4: Make a single payment of principal and interest at the end of the loan period. A different plan: Pay off the principal per the table below. In addition, pay the accumulated interest at the end of each interest period.

Witt Corporation received its charter during January of this year. The charter authorized the following stock:

Preferred stock: 10 percent, $13 par value, 22,400 shares authorized

Common stock: $11 par value, 51,500 shares authorized

During the year, the following transactions occurred in the order given:

1. Issued 38,300 shares of the common stock for $15 per share.
2. Sold 5,900 shares of the preferred stock for $19 per share.
3. Sold 3,100 shares of the common stock for $18 per share and 1,400 shares of the preferred stock for $29 per share.
4. Net income for the year was $66,000.

Required:

Prepare the stockholders' equity section of the balance sheet at the end of the year.

An investment pays $1,950 per year for the first 5 years, $3,900 per year for the next 6 years, and $5,850 per year the following 10 years (all payments are at the end of each year). If the discount rate is 10.95% compounding quarterly, what is the fair price of this investment?

Work with 4 decimal places and round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.

Group of answer choices

$22,643.73

$26,956.82

$28,574.23

$23,182.86

$25,608.98

Pera inc does not currently pay dividends. The company will start with an annual dividend of $13 at the end of year 4 and will pay the same amount each year until year 8. Thereafter, it will increase the dividends by 2% per year forever. If the required rate of return on this stock is 8%, what is the price of this stock today?

Riskfree rate 0.03                   

Market rate 0.11

You have three stocks in your portfolio: Applied Materials, Texas Instruments, and Qualcomm. Use their information in the chart below to answer the questions.

1. What is each stock’s dividend yield?

2. What is each stock’s capital gain return?

3. What is each stock’s holding period return

4. Using the holding period returns and the data above, calculate your expected return on your portfolio.

5. What is each stock’s required return?

6.         Using the required returns as the means, what is virtually the entire range of returns for each stock?

Cash flows estimation and capital budgeting:
You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $11,000.00, and it would cost another $2,570.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,850.00. The machine would require an increase in net working capital (inventory) of $860.00. The new machine would not change revenues, but it is expected to save the firm $26,235.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 36.00%.

If the project's cost of capital is 13.25%, what is the NPV of the project?

Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.

Group of answer choices

$11,000.00

$30,332.39

$18,961.87

$24,569.24

$13,570.00

a. What is the initial cash outlay? (4 pts.)
b. What is the free cash flow for year 1? (4 pts)
c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)? (4 pt)

Cash flows estimation and capital budgeting:
You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,300.00, and it would cost another $2,370.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,650.00. The machine would require an increase in net working capital (inventory) of $770.00. The new machine would not change revenues, but it is expected to save the firm $24,185.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 32.00%.

If the project's cost of capital is 12.10%, what is the NPV of the project?

Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.

Group of answer choices

$10,300.00

$12,670.00

$18,247.98

$30,614.46

$29,696.03

a. What is the initial cash outlay? (4 pts.)
b. What is the free cash flow for year 1? (4 pts)
c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)? (4 pt)

Last year, Michelson Manufacturing reported $10,250 of sales, $3,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds outstanding that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 25%. This year’s data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $725. By how much will the depreciation change cause the firm’s net after-tax income to change? Note that the company uses the same depreciation calculations for tax and stockholder reporting purposes.