An investor purchased 550 shares of stock A at $22.50 per share and 1,050 shares of stock B at $30.50 per share one year ago. Stock A and stock B paid quarterly dividends of $2.50 per share and $2.00 per share, respectively, during the year. One year later, the investor sold both stocks at $30.50 per share. The correlation coefficient (ρ_AB) is 0.3 and the standard deviations of stock A and stock B are 20.5 percent and 15.5 percent, respectively.

Calculate the standard deviation of the portfolio. (Round intermediate calculations to 4 decimal places, e.g. 15.2512 and the final answer to 2 decimal places, e.g. 15.25%.)

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 5.8%. The probability distribution of the risky funds is as follows:

The correlation between the fund returns is 0.18.

Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio.

Company V earned a net profit margin of 25% on sales of $25 million in its most recently ended fiscal year. Capital investment was $2.5 million and depreciation was $3 million. Investment in working capital is 10% of sales every year. Assume the following:

• Sales, net income, cap ex, depreciation and interest expense are expected to grow 10% every year for the next five years
• After five years sales, net income, cap ex, depreciation and interest expense will decline to a stable growth rate of 4% per year

The tax rate is 36%. Company Z has 1.5 million shares of common stock outstanding. Company Z also has long-term debt paying 10% interest and it is trading at its par value of $30 million.

Calculate the value of the firm and its equity assuming the cost of capital is 15% during years 1-5 and 12% during the stable stage.

This is all one question, thank you very much in advance!

You must evaluate a proposal to buy a new milling machine. The base price is $189,000, and shipping and installation costs would add another $16,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $103,950. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $7,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $45,000 per year. The marginal tax rate is 35%, and the WACC is 13%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.

1. How should the $5,000 spent last year be handled?
   1. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
   2. Last year's expenditure is considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   3. Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   4. The cost of research is an incremental cash flow and should be included in the analysis.
   5. Only the tax effect of the research expenses should be included in the analysis.
   
   -Select-IIIIIIIVVItem 1

2. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.
   $

3. What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Do not round your intermediate calculations.

   Year 1 $

   Year 2 $

   Year 3 $

4. Should the machine be purchased?

Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 72.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 72.0 when he fully retires, he will wants to have $2,975,569.00 in his retirement account. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 6.00% interest rate.

Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 75.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 75.0 when he fully retires, he will wants to have $3,119,504.00 in his retirement account. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 9.00% interest rate.

Answer format: Currency: Round to: 2 decimal places.

Goodwin Technologies, a relatively young company, has been wildly successful but has yet to pay a dividend. An analyst forecasts that Goodwin is likely to pay its first dividend three years from now. She expects Goodwin to pay a $1.75000 dividend at that time (D₃ = $1.75000) and believes that the dividend will grow by 9.10000% for the following two years (D₄ and D₅). However, after the fifth year, she expects Goodwin’s dividend to grow at a constant rate of 3.48000% per year.

Goodwin’s required return is 11.60000%. Fill in the following chart to determine Goodwin’s horizon value at the horizon date (when constant growth begins) and the current intrinsic value. To increase the accuracy of your calculations, do not round your intermediate calculations, but round all final answers to two decimal places.

Assuming that the markets are in equilibrium, Goodwin’s current expected dividend yield is   , and Goodwin’s capital gains yield is   .

Goodwin has been very successful, but it hasn’t paid a dividend yet. It circulates a report to its key investors containing the following statement:

Goodwin’s investment opportunities are poor.

Is this statement a possible explanation for why the firm hasn’t paid a dividend yet?

Yes

No

Evaluate the following projects, using the net present value criteria. Assume a cost of capital of 9%.

Star Computer Services has the following three investment projects available this year.

The firm's cost of capital is 7 %.

Below is the income statement of a publicly-traded biotech company from 2004 until 2007:

The company’s stock was trading for $2 in 2004 and is now trading for $7. Are investors irrational? Should the stock be sold short? Is it possible for a company in the biotech business to be worth something even though it has no current sales? What can justify the billion-dollar values of technology companies which have yet to earn any profits?

Rossdale Co. stock currently sells for $73.31 per share and has a beta of 1.24. The market risk premium is 6.90 percent and the risk-free rate is 2.82 percent annually. The company just paid a dividend of $4.37 per share, which it has pledged to increase at an annual rate of 3.25 percent indefinitely. What is your best estimate of the company's cost of equity?

Multiple Choice

• 9.13%

• 9.53%

• 7.88%

• 10.39%

• 11.19%

Saint Nick Enterprises has 15,500 shares of common stock outstanding at a price of $59 per share. The company has two bond issues outstanding. The first issue has 7 years to maturity, a par value of $1,000 per bond, and sells for 94 percent of par. The second issue matures in 21 years, has a par value of $2,000 per bond, and sells for 101.5 percent of par. The total face value of the first issue is $150,000, while the total face value of the second issue is $250,000. What is the capital structure weight of debt?

Multiple Choice

• .2737

• .3015

• .3468

• .3733

• .1938

Coriander with a 14% WACC is evaluating two projects for this year’s capital budget. After-tax cash flows, including depreciation are as follows: Year Project A Project B O -$6000 -$18,000 1 $2000 $5,600 2 $2000 $5,600 3 $2000 $5,600 4 $2000 $5,600 5 $2000 $5,600 a. Calculate NPV and IRR for each project b. Assuming the projects are independent which one (s) would you recommend? c. If the projects are mutually exclusive, which would you recommend?

Consider a new product or service that has recently become available for purchase by consumers. To what extent did this product or service possess the “screening” characteristics that are described in the chapter (adding value, providing competitive advantage, etc.)?