Explain how the KMV model predicts bankruptcy probability?

Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1 on the market index. Firm-specific returns all have a standard deviation of 30%.

Suppose that an analyst studies 20 stocks, and finds that one-half have an alpha of 2%, and the other half an alpha of −2%. Suppose the analyst buys $1 million of an equally weighted portfolio of the positive alpha stocks, and shorts $1 million of an equally weighted portfolio of the negative alpha stocks.

a. What is the expected profit (in dollars) of overall portfolio and standard deviation of the analyst's overall portfolio return?

b. How does your answer on variance and standard deviation of overall portfolio return if the analyst examines 50 stocks instead of 20 stocks?

One-year Treasury bills currently earn 4.00 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 4.20 percent. The liquidity premium on 2-year securities is 0.06 percent. If the liquidity theory is correct, what should the current rate be on 2-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Route Canal Shipping Company has the following schedule for aging of accounts receivable:

a. Calculate the percentage of amount due for each month.

b. If the firm had $1,620,000 in credit sales over the four-month period, compute the average collection period. Average daily credit sales should be based on a 120-day period.

c. If the firm likes to see its bills collected in 45 days, should it be satisfied with the average collection period?

d. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied?

Johnson Industries finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock. · The company can issue bonds at a yield to maturity of 8.8 percent. · The cost of preferred stock is 8 percent. · The company's common stock currently sells for $30 a share. · The company's dividend has just paid $2.00 a share (D0 = $2.00), and is expected to grow at a constant rate of 7 percent per year. · Assume that the flotation cost on debt and preferred stock is zero, and no new stock will be issued. · The company's tax rate is 30 percent. What is the company's weighted average cost of capital (WACC)? Express your answer in percentage (without the % sign) and round it to two decimal places.

Note: a is not 8.27, b is not 19.73, and d is not 9.97

c is 13.11 and e is 12.12

I just need a, b, and d answered

Purpose of Assignment 
The purpose of this assignment is to allow the students to understand and practice the measurement of present value, future value, and interest rate using Microsoft^® Excel^®. 

Assignment Steps 

Resources: Microsoft^® Office^® 2013 Accessibility Tutorials, Microsoft^® Excel^®, Time Value of Money Calculations Template

Calculate the following time value of money problems using Microsoft^® Excel^®:

If we place $8,592.00 in a savings account paying 7.5 percent interest compounded annually, how much will our account accrue to in 9.5 years?

What is the present value of $992 to be received in 13.5 years from today if our discount rate is 3.5 percent?

If you bought a stock for $45 dollars and could sell it fifteen years later for three times what you originally paid. What was your return on owning this stock?

Suppose you bought a house for $3,250,000 to make it a nursing home in the future. But you have not committed to the project and will decide in nine years whether to go forward with it or sell off the house. If real estate values increase annually at 1.5%, how much can you expect to sell the house for in nine years if you choose not to proceed with the nursing home project?

If your daughter wants to earn $215,000 within the next twenty-three years and the salaries grow at 4.45% per year. What salary should she start to reach her goal?

Guthrie Enterprises needs someone to supply it with 155,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost $2,100,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $165,000. Your fixed production costs will be $650,000 per year, and your variable production costs should be $9.07 per carton. You also need an initial investment in net working capital of $320,000. If your tax rate is 21 percent and you require a 11 percent return on your investment, what bid price per carton should you submit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

You are looking at the car that is currently selling at $65,000. Classic Autos is offering free credit (i.e. no interest charged on the borrowed amount) on the car. You pay $10,000 down today and then pay the remaining balance at the end of 6years. Premium Motors next door does not offer credit, but will give you $20,000 off the list price if you pay cash now. Assume annual compounding with 9% discount rate. Which of the following statement is TRUE?

You are considering a new product launch. The project will cost $1,192,500, have a five-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 230 units per year; price per unit will be $18,500, variable cost per unit will be $15,000, and fixed costs will be $321,000 per year. The required return on the project is 13 percent, and the relevant tax rate is 30 percent.

Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±10 percent.

What are the best-case and worst-case NPVs with these projections? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

One year ago, your company purchased a machine used in manufacturing for $90,000. You have learned that a new machine is available that offers many advantages and you can purchase it for $140,000 today. It will be depreciated on a straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $40,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $20,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $8,182 per year. The market value today of the current machine is $45,000. Your company's tax rate is 35%, and the opportunity cost of capital for this type of equipment is 10%Should your company replace its year-old machine?

The NPV of replacing the year-old machine is

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Asset sale is one form of corporate restructuring. Describe the asset sale process. Give one example of an asset sale as discussed in the course or in recent news articles.

As an individual investor, you have three funds to invest into. The first is an equity fund, the second is a corporate bond fund, and the third is a T-bill money-market fund (your risk-free asset). Assume your personal risk aversion is 0.06 (A=0.06). The correlation between the equity fund and the bond fund returns is 0.1.

1. Find weights of the equity and corporate bond funds in the minimum variance portfolio.

2.Using weights calculated in Question 1, compute the expected return (E[r]) and the risk (standard deviation) of the minimum variance portfolio.

3.Find weights of the equity and corporate bond funds in the optimal portfolio.

4.Using weights calculated in Question 3, find the expected return (E[r]) and risk (standard deviation) of the optimal portfolio.

5.Compute the slope of the Capital allocation line (CAL) using the optimal portfolio from questions 3 and 4 as your risky portfolio.

6.Using your personal risk aversion (A=0.06) and the optimal portfolio as the risky portfolio, find the weights of the optimal portfolio and of the risk-free asset in the complete portfolio.

7.Using weights calculated in Question 6, compute the expected return (E[r]) and the risk (standard deviation) of your complete portfolio.

8.Calculate weight of the equity and corporate bond fund in the complete portfolio calculated in Questions 6 and 7.