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.

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.

Explain the difference between the primary and secondary markets. What roles do banks play in these markets?

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)?

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?

Problem 4-04

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:

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?

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?

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?

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.)