The following is market information: Current spot rate of pound = $1.23 90-day forward rate of pound = $1.24 3-month deposit rate in U.S. = 1.1% 3-month deposit rate in Great Britain = 1.3% If you have $250,000 and use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?

There are two major approaches to corporate valuation: a) using comparable firms (via multiples, i.e. ratios) and b) discounted cash flows based methods (FCF models, capital budgeting metrics all fall into this category). Based on the case, which method (A or B above) do you find more useful? Briefly discuss relative strengths and weaknesses you can think of for both methods. Answer detailed.

A 4-year annuity of eight $9,800 semiannual payments will begin 7 years from now, with the first payment coming 7.5 years from now.

a. If the discount rate is 7 percent compounded monthly, what is the value of this annuity five years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. If the discount rate is 7 percent compounded monthly, what is the value three years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c. If the discount rate is 7 percent compounded monthly, what is the current value of the annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

SHOW HOW TO SOLVE WITH FINANCIAL CALCULATOR PLEASE

What is the duration of a 10-year bond with a coupon rate of 6%, paid annually, and a yield to maturity of 11%?

Luke and Amy are saving for the down payment on a house. The houses in the area they prefer have an average selling price of $450,000 and they need a 10% down payment to ensure their mortgage payments are not too high. They have $30,000 saved that they can invest today at 6.5% (annual compounding).

a) How long before they will have enough for the down payment saved?

b) They want to buy the house sooner.  In addition to the $30,000 saved to date, how much would they need to invest each month (into the same investment) in order to have enough for the down payment in 2 years?

c) What would their payments be for part (b) if they made them at the beginning of the month instead of the end?

Ratio analysis is used to make relative comparisons between organizations. Given that, why might an organization’s ratios on HIT spending differ from their peers? Might those differences be a good, bad, or indifferent thing?

Greta, an elderly investor, has a degree of risk aversion of A = 3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 8% per year, with a SD of 23%. The hedge fund risk premium is estimated at 13% with a SD of 38%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced by this claim.

What should be Greta’s capital allocation? (Do not round your intermediate calculations. Round your answers to 2 decimal places.)

S&P%

hedge&

risk-free asset&

Part B. In clear terms explain why knowledge of valuation is vital in entrepreneurial finance. In your response, make sure to answer the question from the points of view of: (20 points)

1. Entrepreneurs;

2. Investors
3. Future Team Members in a venture

Part C. What are the most important things that you can do for a venture in order to get the odds of success in your favor? Explain. (10 points)

Greta, an elderly investor, has a degree of risk aversion of A = 3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 7.2% per year, with a SD of 22.2%. The hedge fund risk premium is estimated at 12.2% with a SD of 37.2%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced by this claim.

Calculate Greta’s capital allocation using an annual correlation of 0.3. (Do not round your intermediate calculations. Round your answers to 2 decimal places.)

please show all steps and formulas

Greta, an elderly investor, has a degree of risk aversion of A = 3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 6.6% per year, with a SD of 21.6%. The hedge fund risk premium is estimated at 11.6% with a SD of 36.6%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced by this claim. What should be Greta’s capital allocation? (Do not round your intermediate calculations. Round your answers to 2 decimal places.)

Part A. Outline and explain all the VARIABLES and FACTORS that determine valuation and valuation analysis of entrepreneurial ventures. Be specific in your response. (Note valuation or pricing, the topic of this questions, and evaluation, are two different subjects) (20 points)

A gym owner is considering opening a location on the other side of town. The new facility will cost $1.47 million and will be depreciated on a straight-line basis over a 20-year period. The new gym is expected to generate $559,000 in annual sales. Variable costs are 49 percent of sales, the annual fixed costs are $90,500, and the tax rate is 34 percent. What is the operating cash flow?

Multiple Choice

• $91,151

• $219,580

• $201,929

• $334,200

• $153,419

1. Why do most leases have expensive cancellation provisions? Does the existence of this provision shift risk to the lessor or to the lessee?

2. Starting in 2019 all lease obligations must show up on the balance sheet of a corporation. This is effect does away with what type of lease in accounting speak the operating lease or the capital lease?

Problem 10-08 NPVs, IRRs, and MIRRs for Independent Projects

Edelman Engineering is considering including two pieces of equipment, a truck, and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $15,000 and that for the pulley system is $21,000. The firm's cost of capital is 11%. After-tax cash flows, including depreciation, are as follows:

Year Truck Pulley

1 $5,100 $7,500

2 5,100 7,500

3 5,100 7,500

4 5,100 7,500

5 5,100 7,500

a. Calculate the IRR for each project. Round your answers to two decimal places.

Truck: %

Pulley: %

b. Calculate the NPV for each project. Round your answers to the nearest dollar, if necessary. Enter each answer as a whole number. For example, do not enter 1,000,000 as 1 million.

Truck: $   
Pulley: $   

c. Calculate the MIRR for each project. Round your answers to two decimal places.

Truck:  %
Pulley:  %

Please, show step by step. Thank you.