When she becomes 25, Maggie invests $1,000 on the first day of each year for a period of ten years for a total investment of $10,000. She then stops and makes no further investments. Assume a 6% interest rate.

When he becomes 40, Ben invests $1.000 on the first day of each year for a period of 25 years for a total investment of $25,000. Assume a 6% interest rate. How much will Maggie and Ben have each when they reach age 65?

1) Assume that you are a speculator. What would you choose in terms of instruments: options or futures/ forwards? Explain your answer. Also if you believe that there is a trade-off between the two, clearly explain the cases when you would use one over the other?

a. ) Answer question 1 from the perspective of a US MNC

Exercise #4: A firm can lease a truck for 5 years at a cost of $45,000 annually. It can instead buy a truck at a cost of $95,000, with annual maintenance expenses of $25,000. The truck will be sold at the end of 5 years for $35,000. The cost of capital is 15%. Which is a better option? A. EAC of Lease = [11] B. PV of all Costs of Purchase = [12] C. EAC of Purchase = [13] D. Better Option is to …………[14]………………………….

Dewey Corp. is expected to have an EBIT of $2.45 million next year. Depreciation, the increase in net working capital, and capital spending are expected to be $180,000, $85,000, and $185,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $13 million in debt and 800,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.5 percent indefinitely. The company’s WACC is 9.1 percent and the tax rate is 21 percent. What is the price per share of the company’s stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Blossom, Inc., has four-year bonds outstanding that pay a coupon rate of 8.00 percent and make coupon payments semiannually. If these bonds are currently selling at $911.89.

What is the yield to maturity that an investor can expect to earn on these bonds? (Round answer to 1 decimal place, e.g. 15.2%.)

Yield to maturity %

What is the effective annual yield? (Round answer to 1 decimal place, e.g. 15.2%.)

Effective annual yield %

The following are quotes from a currency dealer in the New York currency market:

6. Using the quotes provided above, how many US dollars would it cost to purchase one million

a. euros?

b. New Zealand dollars?

c. Mexican pesos?

e. Egyptian pounds?

Cornerstone Exercise 4.1 (Algorithmic) Applied Overhead and Unit Overhead Cost: Plantwide Rates Seco, Inc., produces two types of clothes dryers: deluxe and regular. Seco uses a plantwide rate based on direct labor hours to assign its overhead costs. The company has the following estimated and actual data for the coming year: Estimated overhead $1,862,000 Expected activity 49,000 Actual activity (direct labor hours): Deluxe dryer 13,000 Regular dryer 36,000 Units produced: Deluxe dryer 26,000 Regular dryer 180,000 Required: 1. Calculate the predetermined plantwide overhead rate, using direct labor hours. $ 38 per hour Calculate the applied overhead for each product, using direct labor hours. Applied overhead Deluxe $ Regular $ 2. Calculate the overhead cost per unit for each product. If required, round your answers to the nearest cent. Overhead Cost Deluxe $ 19 per unit Regular $ 52.60 per unit 3. What if the deluxe product used 26,000 hours (to produce 26,000 units) instead of 13,000 hours (total expected hours remain the same)? Calculate the effect on the profitability of this product line if all 26,000 units are sold. Profits would by $

Explain the following business terms:

• Explain what attestation means in business.
• Explain what assurance means in business.
• Explain what auditing means in business.

An investor believes that there will be a big jump in a stock price, but is uncertain as to the direction. Identify five different strategies the investor can follow. Compare and explain the differences between them.

A risk-free investment of $5000 will return 3%. A risky $5000 investment has a 23% chance of defaulting and returning only $3500. How much must the risky investment promise to return?

14.8%

13.0%

11.5%                                                         

12.9%

Arthur buys $2,200.00 worth of stock. Six months later, the value of the stock has risen to $2,500.00 and Arthur buys another $1,000.00 worth of stock. After another eight months, Arthur’s holdings are worth $3,100.00 and he sells off $800.00 of them. Ten months later, Arthur finds that his stock has a value of $2,300.00.

Compute the annual dollar-weighted yield for Arthur over the two-year period.

Write your answer as a percentage, rounded to three decimal places.

Jane is the financial manager for Alpha Corporation. She has been asked to perform a lease-versus-purchase analysis on a new printing machine. The machine costs $360,000 and will be depreciated using the straightline method with zero residual value over five years. Alternatively, the company can lease the machine with year-end payments of $95,000 over five years. The company’s tax rate is 35% and its before-tax cost of borrowing is 10%.

Required:

a) Given the above information, calculate the net advantage to leasing (NAL) for Alpha Corporation to obtain the new printing machine, assuming the company will use its own reserves rather than borrowing from the bank. Which option would you recommend? Explain.

b) Suppose only $300,000 purchase price of the machine is borrowed from OUHK Bank. Should Alpha Corporation change its buy or lease decision on the printing machine? Discuss.

c) Please comment on the following remark: ‘Leasing is a zero sum game between the lessee and lessor.’

d) Briefly discuss the reasons for firms to lease even if NALs are negative.

Suppose a company is looking to hedge a risk in the derivatives market. What, fundamentally, is the difference between hedging in the futures market vs. the options market? Which would you choose for a given situation? Provide examples.

A Japanese company has a bond outstanding that sells for 93 percent of its ¥100,000 par value. The bond has a coupon rate of 6 percent paid annually and matures in 16 years. What is the yield to maturity of this bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

FINANCIAL CALCULATOR CALCULATIONS ONLY