Explain how to estimate the cost of capital. In particular, explain how to estimate the equity cost of capital, list two different methods to estimate the debt cost of capital, and how to calculate the weighted average cost of capital for a given debt-equity ratio.

It is absolutely critical that international businesses understand the influence of exchange rates on the profitability of trade and investment deals. Foreign exchange risk can be divided into three main categories: transaction exposure, translation exposure, and economic exposure. Talk about some ways that risk in these three areas can be minimized.

Please answer only with BA2 PLUS Financial calculator

An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would cost $239.99 million, and the expected net cash inflows would be $80 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $85.19 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk-adjusted WACC is 17%.
a) Calculate the NPV and IRR with and without mitigation.
b) How should the environment effects be dealt with when evaluating this project?
c) Should this project be undertaken? If so, should the firm do the mitigation?

An investor buys a condo for $160,000 by putting 10% down and financing the rest using the 15 year fixed rate in the WSJ. What are her monthly payments? Another investor decides to use an interest only loan to finance the same type of condo, the rate is 3.5% a year, what are the monthly payments? Three years later the condo is worth $170,000, what will be the return on the investment for each investor?

acme Services’ CFO is considering whether to take on a new project that has average risk. She has collected the following information: • The company has outstanding bonds that mature in 15 years. The bonds have a face value of $1,000, an annual coupon of 7.5%, and sell in the market today for $1150. There are 15,000 bonds outstanding.
• The risk-free rate is 3%
. • The market risk premium is 5%
. • The stock’s beta is 0.9
. • The company’s tax rate is 35%.
• The company has 100,000 shares of preferred stock with a par value of $100. These shares are currently trading at $73, and pay an annual dividend of $3.50.
• The company also has 2,250,000 common shares trading at $15. These shares last paid an annual dividend of $0.33.
What is Acme's...
a. weight of common shares
b. before tax cost of acmes debt
c. preferred shares

A stock had returns of 18.66 percent, 22.09 percent, −15.35 percent, 9.17 percent, and 28.24 percent for the past five years. What is the standard deviation of the returns?

IBM is considering a new expansion project and the finance staff has received information summarized below:

- The project require IBM to purchase $1,000,000 of equipment in 2013 (t=0) - Inventory will increase by $100,000 and accounts payable will rise by $50,000

- The project will last for four years. The company forecasts that they will sell 1,000,000 units in 2014, 2,000,000 units in 2015, 3,000,000 units in 2016, and 4,000,000 units in 2017. Each unit will sell for $3.00

- The fixed cost of producing the product is $2 million each year

- The variable cost of producing each unit is $1.00 each year

- The equipment will be depreciated under the MACRS system using the applicable rates of 33%, 45%, 15%, and 7% respectively

- When the project is completed in 2017 (t=4), the company expects that it will be able to salvage the equipment for $100,000, and it expects that it will fully recover the NWC.

- The estimated tax rate is 40% - Based on the perceived risk, the project's WACC is estimated to be 12%

1. Create the projected Free Cash Flow Schedule for the project

2. Use the capital budgeting techniques to evaluate free cash flows

Through the use of turnover rates, explain why a firm might seek to increase the volume of its sales even though such an increase can be secured only at reduced prices. Please explain

Compute the NPV statistic for Project Y if the appropriate cost of capital is 11 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Should the project be accepted or rejected?

17. Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 11 percent and the maximum allowable discounted payback is 3 years.

You are a bond portfolio manager who is in the business of providing a guaranteed rate of return to your clients over a given investment horizon. The following information has been provided to you on bonds X and Y

                                       Bond          Coupon          Maturity               Price

                                          X                  8%               10 Years                96.72

                                          Y                  9%              30 Years              105.37

1.   What fractions should be invested in X and Y to obtain a portfolio with duration of a) 8 years b) 9 years c) 10 years?

Alanya Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? IRR?

Has to be done by hand! Not excel