A company is considering different options with respect to the current asset policy. In all instances, the firms fixed assets will be $1,000,000 and the firm plants to use of debt ration of 70% (D/TA = 0.7). The market interest rate is 9% on all debt used (both short and long term). Two options are under consideration: Option 1 - hold current assets equal to 30% of projected sales. Option 2 - hold current assets equal to 60% of projected sales. The company forecasts it will earn 25% of sales before paying interest (EBIT = 0.25 * Sales) and projects to do $3,000,000 in sales. Finally, the federal and state tax rate is 35%. What is the ROE for each option?

Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 20 percent to 13 percent.

a. What is the bond price at 20 percent?

b. What is the bond price at 13 percent?

c. What would be your percentage return on investment if you bought when rates were 20 percent and sold when rates were 13 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

1. (14 pts) The Grunewald Company has developed the following data regarding the rates of return on a potential stock and the market:

State of the Economy of Each                                                Rates of Return If State occurs

1. Caculate the standard deviations for the stock A and the Market.
2. Calculate the betas for the stock A and the market
3. Calculate the probability that stock A’s return is negative, that is P (K<0)=?
4. Calculate the probability that stock A’s return is between 0 and 15%, that is P (0<K<15)=?
5. Calculate the Covariance and correlation coefficient between stock A and the market.

PLEASE: If possible, do step by step with the Financial calculator HP10BII

1.) For an annual interest rate of 2.75%(compunded semi-annually), what mortgage loan can be obtained with constant bi-weekly payments of $1,000 over 25 years? Why it is more or less than $500,000?

2.) For an annual interest rate of 2.75%(compunded semi-annually), what mortgage loan can be obtained with constant annual payments of $26,000 over 25 years? Why your answers are different in 1) and 2) even though you make the same annual payment of $26,000

5. Farah’s Fashions (FF) makes designer clothes. FF’s factory can produce 10,000 garments for $14. FF can produce another 20,000 garments, but it will have to operate two more shifts increasing the per unit price to $22 each for these garments. There is a 10% chance the fashions will be a hit and FF can sell garments for $50 each. There is a 20% chance the fashion will flop and the garments will have to be heavily discounted and sold for $5 each. There is a 70% chance the fashion will be moderately successful and the garments can be sold for $20 each. The garments will all be sold in one year and, for simplicity, assume FF’s cost of capital is zero. What is the expected selling price for a garment, how many garments would FF produce to sell at this price and what is the NPV at this sells level? What is the value (NPV) of the project if you can wait to decide how much to produce next year?

6. A firm with a current value (cost) of $800 and will return $1,000 next year. The firm also has a potential project that costs $500 and will return $550 next year, but the firm does not have the money to invest and must raise it from outside investors. However, outside investors mistakenly believe the firm will be worth $820 in one year without the project and $13,030 with the project. For simplicity, assume a zero discount rate. Does the project have a positive NPV? Acting on behalf of existing shareholders, should you take the project?

7. An automated machine costs $1,000 and has a 20% probability of breaking irreparably at the end of each year (assuming it was working in the previous year). The machine has a maximum five-year life and will be disposed of with zero value at the end of five years. The machine produces $400 of cashflow at the end of each year and the discount rate is 10% per year. What is the most likely number of years the machine will last and what would the machines value be?

13. Crazy Cliff’s Car Coral (CCCC) is considering buying a company van for $50,000. CCCC expects the van to last 5 years and be disposed of at the end of 5 years for $5,000. CCCC will fully depreciate the van over 5 years using straight-line depreciation. CCCC expects the van to increase sales by $30,000 per year over the life of the van. CCCC also expects maintenance costs to be $4,000 per year. CCCC’s tax rate is 25% and its cost of capital is 10%. What are CCCC’s net income and cashflow in each year? What is the NPV of the van?

"Business Law"

Exculpatory Clause Discussion

Exculpatory clauses are provisions in contracts which appear to relieve one or more parties from tort liability. These clauses are also commonly referred to as "waivers or releases of liability".

1. Do you think that exculpatory clauses should be routinely enforced regardless of the situation? Why or why not?
2. What limitations should be placed on the enforcement of exculpatory clauses, if any?

KADS, INC has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated using bonus depreciation:they total $50,000. The machine has an expected life of three years and a $75,000 estimated resale value. Revenue from the new game is expected to be $600,000 per year, with costs of $250,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 15 percent, and it expects net working capital to increase by $100,000 at the beginning of the project. What will cash flows for this project be?

Are credit default swaps “financial weapons of mass destruction” as described by Warren Buffet? If so, why? Should they be regulated? How should financial institutions best use them? What are the pitfalls of credit default swaps? What are the major benefits? Do you have different answers for any of these questions for credit default swap baskets (CDX)?

Examine the concept of the time value of money in relation to corporate managers. Propose two (2) methods in which time value of money can help corporate managers in general.

Consider the following information:

a. Calculate the return predicted by CAPM for a portfolio with a beta of 1.5. (Round your answer to 2 decimal places.)

Return???

b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Beta???

c.  If the simple CAPM is valid, is the situation above possible?

Yes or No???

Gonyo Inc., which produces and sells a single product, has provided the following contribution format income statement for December appears below:

Sales (5,000 units) $ 305,000

Variable expenses 150,000

Contribution margin 155,000

Fixed expenses 104,400

Net operating income $ 50,600

Required: Redo the company's contribution format income statement assuming that the company sells 5,200 units.

What is the Net operating income: