a) Use the information below to calculate the bid cross rate between C$ and € in the "C$/€ " format.

Answer Format: Keep four decimals; use the price currency as the unit. Example:  4.1234(C$) or 4.1234( € )

b) An English business man just received €187,039 payment from a European company. He obtained currency quotes from his bank: €1.116/£ --  €1.1256/£. Estimate his £ cash flow.

Answer format: keep four decimal places; include the price currency only; do not use thousand separator. Example: 2122.1345 (£) or  2122.1345 (€)

c) On May 1 of a certain year the pound to euro exchange rate was £0.1.1245/€. On July 15 the exchange rate was  £0.1.1298/€ . Therefore during the two and half months period, euro appreciated against pound.  

True or False

d) Suppose you obtained quotes for euro from your bank: $1.1265/€ --  $1.1305/€. Calculate the bid ask spread.

Answer format: use four decimals; do not report percentages. Example: 0.0011.

• Check My Work (1 remaining)

The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $60,000. The annual cash flows have the following projections. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. If the cost of capital is 10 percent, what is the net present value of selecting a new machine? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

b. What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
  

c. Should the project be accepted?
  

You are buying a house and the mortgage company offers to let you pay a​ "point" ​(1.0 % of the total amount of the​ loan) to reduce your APR from 6.50 % to 6.25 % on your $ 400000​, 30​-year mortgage with monthly payments. If you plan to be in the house for at least five​ years, should you do​ it? ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

Fey Fashions expects the following dividend pattern over the next seven​ years:

. The company will then have a constant dividend of​$2.60 forever. What is the​ stock's price today if an investor wants to earn

a.  

16​%?

b.  

23%?

What is finance? Briefly discuss how the study of finance is essential to business today. There are other areas of business, such as marketing, human resources, and management. How does finance impact them? In other words, can a business efficiently run without everyone having some knowledge of the field? Explain.

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.31 million. The fixed asset will be depreciated straight- line to zero over its three-year tax life. The project is estimated to generate $1,725,000 in annual sales, with costs of $635,000. The project requires an initial investment in net working capital of $280,000, and the fixed asset will have a market value of $225,000 at the end of the project.

a. If the tax rate is 23 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)

b. If the required return is 11 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

a. Year 0 cash flow =

Year 1 cash flow =

Year 2 cash flow =

Year 3 cash flow =

b. NPV =

St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. The new welder will cost $180,000 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $29,000 to $81,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 40%, and the project cost of capital is 14%. Should the old welder be replaced by the new one? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign.

The NPV of the project is $????

Assume the CAPM holds and the market is efficient. Given the following information about the true market portfolio and stock S:

State    Probability      Return (Market)                      Return (S)

1          0.2                   0.25                                         0.4

2          0.5                   0.1                                         -0.085

3          0.3                 -0.05                                          0.12    

1. You are given enough information to determine the beta of S. (True / False)

2. Calculate the expected rate of return on the market portfolio and the expected return on stock S.

3. It turns out that stock S has a beta of about 0.7. Find the risk-free rate of return.

A call that is $2 in-the-money trades for $4 today. A put written on the same stock that is $2 out-of-the-money trades for $2.25 today. Both options expire in 6 months and the risk free rate is 10% p.a. continuously compounded while the stock trades for $40. Are there any arbitrage opportunities available? If yes state the arbitrage strategy and prove

that it works.

Topeka Corporation uses special strapping equipment in its packaging business. The equipment was purchased at the beginning of 2010 for $800,000 and had an estimated useful life of 8 years with no salvage value. Topeka uses the straight-line depreciation method.

At the end of 2010, new technology was introduced that would accelerate the obsolescence of the equipment. Topeka’s controller gathered the following information:   

14. Assume Topeka will continue to use the equipment and that it tests the asset for impairment under IFRS. Based on this test, which of the following statements is MOST correct?

15. Assume Topeka will continue to use the equipment and that it tests the asset for impairment under GAAP. Based on this test, which of the following statements is MOST correct?

A stock is trading at $40. There are 3 three-month European calls on the stock with strikes of 35, 40 and 45. The prices of these calls are, respectively, 5.50, 3.85, and 1.50. Consider pursuing the butterfly spread strategy (buy the low and the high strike call and write 2 intermediate strike calls) and find the break-even points of the strategy as well as maximum losses and maximum gains. Any issues -comments? What is happening here?

(Analyzing liquidity) (Related to Checkpoint 4.1 on page 87 ) Apex Fabricating, Inc., manufactures fenders and other after-market body panels for older automobiles. At the close of last year, the firm had $10,381,800 in current assets and $4,152,720 in current liabilities. The company’s managers want to increase its inventory, which will be financed using short-term debt. How much can the firm increase its inventory, financing it with short-term borrowing, without its current ratio falling below 2.0 (assuming all other current assets and current liabilities remain constant)?

Even Quik Trip has a pet e-mouse. Quik Trip has been selling its pet e-mouse for $49 each. Quik Trip's variable cost per unit is $25. Quik Trip is thinking about raising its price by $5 per unit. By what percent must Quantity demanded change so that Quik Trip will have the same total contribution before and after the change in price? (Rounding: tenth of a percent. Report 36.5%, for example, as "35.6". Use a negative sign if your answer is negative.)

ANS: -17.2

A firm is currently priced at P₀ = $30 per share. Beta is 1.25, expected rate of return on the market portfolio is 12%, and the risk-free rate of return is 4%. The firm has Jensen’s alpha of (-2%).

1. Find the expected rate of return the firm should have from the CAPM equation.

2. Find the expected rate of return the firm happens to have, given your answer in part (a) and given alpha

3. Is the firm’s stock priced correctly, overpriced, or underpriced?

4. If the firm is priced at $30 today, and given also your answer in part (b), what is the expected price of the stock next year?