You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $90,000, and it would cost another $18,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $27,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $12,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $62,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%.

1. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent.
   $  
2. 
   
3. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest cent.
   Year 1: $  
   Year 2: $  
   Year 3: $  
4. 
   
5. If the WACC is 14%, should the spectrometer be purchased?
   -Select-(Yes, No)

You hope to retire in 30 years, when you do, you would like to have the purchasing power of $100,000 today, during each year of retirement. Your cash is needed at the beginning of each year of retirement. Inflation is expected to be 3% per year from now until the end of your retirement. Your retirement will last 25 years, you expect your 401k to earn 5% per year during your retirement years. How much money do you need at the beginning of your retirement years, to “just meet” your retirement needs (i.e. what is the size of the needed nest egg)?

Faleye Consulting is deciding which of two computer systems to purchase. It can purchase state-of-the-art equipment (System A) for $21,000, which will generate cash flows of $10,000 at the end of each of the next 6 years. Alternatively, the company can spend $12,000 for equipment that can be used for 3 years and will generate cash flows of $10,000 at the end of each year (System B). If the company’s WACC is 10% and both “projects” can be repeated indefinitely, which system should be chosen, and what is its EAA? Do not round intermediate calculations. Round your answer to the nearest cent.

Choose Project -Select-(A, B), whose EAA = $  

A swap​ is:

A. an agreement between two or more counterparties to exchange sets of cash flows over some future period.

B. a contract that gives the buyer the right to buy the underlying asset at a set price during a set period of time.

C. a contract that gives the seller the right to sell the underlying asset at a set price during a set period of time.

D. an agreement to buy or sell an asset at an agreed price at a future time.

A swap is different from a futures contract​ because:

A. swaps are subject to increased government regulation.

B. swaps are private agreements between counterparties and its terms are flexible.

C. swaps only offer​ shorter-term hedging.

D. swaps offer less privacy.

Why did futures markets originate in agricultural​ markets?

A. The supply of agricultural products depends on the weather and can be subject to wide price fluctuations.

B. The demand for agricultural products depends on the weather and can be subject to wide price fluctuations.

C. Demand for agricultural products is price elastic.

D. All of the above.

Would a farmer buy or sell futures​ contracts? What would a farmer hope to gain by doing​ so?

A farmer would ▼(sell/buy) futures contracts to reduce the risk of agricultural prices ▼(rising/falling).

Would General Mills buy or sell futures contracts in​ wheat? What would General Mills hope to gain by doing​ so?

General Mills would ▼(sell/buy) futures contracts in wheat to reduce the risk of prices ▼(falling/rising).

According to an article in the Wall Street Journal​, options traders were expecting a large move in the price of Facebook stock. They were buying both call options and put options with strike prices near the​ stock's current market price. The article described this strategy as a bet on the size of the​ [price] move instead of its direction.

​Source: Saumya​ Vaishampayan, Options Traders Betting on Big Move for Facebook ​Shares, Wall Street Journal​, April​ 27, 2016.

If the future price of Facebook stock increased above the current market​ price, traders would exercise the ▼(put options/call options)​, ▼(selling/buying) Facebook stock for ▼(less/more) than the then market price. If the price of Facebook stock decreased from the current market​ price, traders would exercise the ▼(call options/put options)​,▼(selling/buying) Facebook stock for ▼(more/less) than the then market price. Traders would make money using this strategy if the ▼(price of the unexercised options/ spread between the future and current market prices) was less than the ▼(spread between the future and current market prices/price of the unexercised options).

What is the difference between hedging and​ speculating?

▼(Speculating/Hedging) serves to reduce risk in financial​ markets, while ▼(speculating/hedging)

may increase risk in the market.

​[Related to the Making the ConnectionLOADING...​] In one of his annual letters to shareholders of Berkshire​ Hathaway, Warren Buffett wrote that trading derivatives has much more counterparty risk than does trading stocks or bonds because​ "a normal stock trade is completed in a few days with one party getting its​ cash, the other its securities. Counterparty risk therefore quickly​ disappears...."

​Source: Warren​ Buffett, "Chairman's​ Letter," Berkshire Hathaway Inc. 2008 Annual Report​, February​ 27, 2009.

Counterparty risk​ is:

A. the risk that the buyer or seller may be unwilling to fulfill the contract.

B. the risk that one party will sell the contract without notifying the other party.

C. the risk of bargaining.

D. the risk of the other party to the transaction defaulting.  

Counterparty risk is greater for trading in derivatives​ because:

A. the transaction is completed before the underlying asset matures.

B. the transaction is only completed after the underlying asset has matured.

C. some of the more complicated derivatives are traded on exchanges.

D. none of the above.

You are currently thinking about investing in a stock valued at $24 per share. The stock recently paid a dividend of $2.20 and its dividend is expected to grow at a rate of 4 percent for the foreseeable future. You normally require a return of 12 percent on stocks of similar risk. Is the stock overpriced, underpriced, or correctly priced? (Round answer to 2 decimal places, e.g. 52.75.)

Crane, Inc., paid a dividend of $3.52 last year. The company's management does not expect to increase its dividend in the foreseeable future. If the required rate of return is 16.0 percent, what is the current value of the stock? (Round answer to 2 decimal places, e.g. 15.25.)

CURRENT VALUE: ________

Wildhorse Corp. paid a dividend of $2.72 yesterday. The company’s dividend is expected to grow at a steady rate of 5 percent for the foreseeable future. If investors in stocks of companies like Wildhorse require a rate of return of 20 percent, what should be the market price of Wildhorse stock? (Round dividend to 3 decimal places, e.g. 3.756 and round final answer to 2 decimal places, e.g. 15.25.)

Market price? _________

The First Bank of Flagstaff has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.70 on this stock. What is the current price of this preferred stock given a required rate of return of 12.5 percent? (Round answer to 2 decimal places, e.g. 15.25.)

Current Price? _________

Each quarter, Sheridan, Inc., pays a dividend on its perpetual preferred stock. Today the stock is selling at $65.50. If the required rate of return for such stocks is 16.00 percent, what is the quarterly dividend paid by this Sheridan? (Round answer to 2 decimal places, e.g. 15.25.)

1) Elaborate on the concept of competitiveness. How does it affect trade in goods and services? Is it necessary that the current account will improve? What are the conditions for the current account to improve?

2 )Compare and contrast autarky with free trade. Talk on the pros and cons.

3) Define the current and financial accounts.

If the simple CAPM is valid and all portfolios are priced correctly, which of the situations below are possible? Consider each situation independently and assume the risk free rate is 5%:     

     A)    Option A.

     B)    Option B.

     C)    Option C.

     D)    Option D.

     E)    Option E.

A stock costs $80 and pays a $4 dividend each year for three years.

a) If an investor buys the stock for $80 and expects to sell it for $100 after three years, what is the anticipated annual rate of return?

b) What would be the rate of return if the purchase price were $60?

c) What would be the rate of return if the dividend were $1 annually and the purchase price were $80 and the sale price were $100?

Please show how to solve within excel and provide formulas. Thank you.

You are a Derivatives Trader at a major Broker-Dealer. At the end of the week you need to calculate and submit several capital ratios for the performance of your business. You consolidate all trading activity across counterparties and asset types. You are deploying standardized metrics to calculate Risk Weighted Assets (RWA). Below are the standardized risk weights for various asset types:

i. Cash, US Treasuries (0%)

ii. US Bank issued paper and FHA, Fannie Mae, Freddie Mac issued paper (20%)

iii. Corporate bonds, notes and other corporate liabilities (100%)

iv. Structured Securities (100%)

v. Other paper (100%)Your holdings book/balance sheet looks as follows:

Cash=$400K, T-Bills=$20M, Verizon Bonds=$25M, East-West Imports Promissory Note=$5M, Uncollateralized Derivatives with JP Morgan=$250M, fully Collateralized (US Treasury collateral) Derivatives with JPMorgan=$50M, CRE Senior Note=$30M. Your weekly Net P&L=$8M. Calculate

1) RWA

2) Return on RWA

Recalculate (1) and (2) in case the US Treasury collateral in the collateralized trades with JPMorgan is

replaced with Mortgage collateral.

Suppose that 20 monthly payments of $100 each are followed by 30 monthly payments of $200 each. If the interest is at an effective monthly rate of 0.5%, what is the accumulated value of the series at the time of the final payment?

A stock has a required return of 10%, the risk-free rate is 4.5%, and the market risk premium is 2%.

1. What is the stock's beta? Round your answer to two decimal places.
2. If the market risk premium increased to 6%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places.
   1. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium.
   2. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
   3. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
   4. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium.
   5. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium.

   Stock's required rate of return will be ____ %.

Charming Paper Company sells to the 12 accounts listed here.   
  

    
Capital Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less, 80 percent for account balances between 31 and 40 days, and 70 percent for account balances between 41 and 45 days. Customers that take over 45 days to pay their bills are not considered acceptable accounts for a loan.
    
The current prime rate is 16.50 percent, and Capital charges 4.50 percent over prime to Charming as its annual loan rate.

a. Determine the maximum loan for which Charming Paper Company could qualify.
  

  
  
b. Determine how much one month’s interest expense would be on the loan balance determined in part a. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
  

1. Given the following information, determine the beta coefficient for Stock L that is consistent with equilibrium: r^L = 9.5%; r_RF = 2.5%; r_M = 10.5%. Round your answer to two decimal places.

2. You have been managing a $5 million portfolio that has a beta of 1.35 and a required rate of return of 8.075%. The current risk-free rate is 2%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 1.65, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places. %?

3. A mutual fund manager has a $20 million portfolio with a beta of 2.4. The risk-free rate is 2.5%, and the market risk premium is 9%. The manager expects to receive an additional $5 million, which she plans to invest in a number of stocks. After investing the additional funds, she wants the fund's required return to be 25%. What should be the average beta of the new stocks added to the portfolio? Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to one decimal place.