A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?

a. Use the U.S. Rule to solve for total interest cost. (Use 360 days a year. Do not round intermediate calculations. Round your answer to the nearest cent.)

Total interest cost            $   

b. Use the U.S. Rule to solve for balances. (Use 360 days a year. Do not round intermediate calculations. Round your answer to the nearest cent.)

c. Use the U.S. Rule to solve for final payment. (Use 360 days a year. Do not round intermediate calculations. Round your answer to the nearest cent.)

Final payment            $

Wilde Software Development has a 12% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 4% rate after Year 3. Wilde’s tax rate is 25%.

Is the Efficient Market Hypothesis wrong if someone with inside (confidential) information is able to make a profit on trades?

The value of outstanding bonds change whenever the going rate of interest changes. In general, short-term rates are more volatile than long-term rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices. Is this statement true or false? Make up a reasonable example using a short-term and a long-term bond to help answer the question.

Cooper Ltd. has 2 operating divisions: domestic sales and international sales.  They also have 2 support divisions: accounting support and human resources support. For the past year, Cooper’s cost records show the following information:

Required:

1. Allocate the 2 support divisions’ costs to the operating divisions using the Direct Method.
2. Allocate the 2 support divisions’ costs to the operating divisions using the Reciprocal Method.
3. Allocate the 2 support divisions’ costs to the operating divisions using the Step Down Method – Allocate Accounting Support first.
4. What method do you recommend and why?
5. Cooper Ltd. would like to share the services of a consultant with another company, Hofstadter Inc.  The consultant will work a total of 1,000 hours for both companies: 700 for Cooper and 300 hours for Hofstadter Inc.  The total cost of the contract will be $368,000.  If Cooper were to contract directly with the consultant for 700 hours, the cost would have been $350,000. If Hofstadter were to contract directly with the consultant, the contract would have cost them $ 150,000. How should the companies divide up the cost of the consultant?

In broad terms, why is some risk diversifiable? Why is other risk non-diversifiable? Differentiate between the two types of risk. Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk?

Your firm is considering investing $7,500,000 in a factory to build home ethanol systems that will allow individuals to create ethanol from grass clippings. There is an 80% chance that the technology will work as planned and expected net cash flows will be $1,240,000 per year and a 20% chance of technical problems that will reduce expected net cash flows to $40,000 per year. Either way, net cash flows would begin a year from today and continue for 20 years (when your patents will expire and new technology will allow personal solar power systems to become viable). Alternatively, in two years, your firm will know whether the technology will work and thus whether net cash flows will be $1,240,000 or $40,000 per year. Should your firm build now or wait two years if the required return on the project is 10% per year?

Management of Sunland Home Furnishings is considering acquiring a new machine that can create customized window treatments. The equipment will cost $213,550 and will generate cash flows of $76,750 over each of the next six years. If the cost of capital is 14 percent, what is the MIRR on this project? (Round intermediate calculations to 3 decimals and final answers to 1 decimal places, e.g. 15.5%. Do not round factor values.)

A 25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for $875. If the yield to maturity remains at its current rate, what will the price be 10 years from now?

Adamson Corporation is considering four average-risk projects with the following costs and rates of return:

The company estimates that it can issue debt at a rate of r_d = 10%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of $6 per year at $42 per share. Also, its common stock currently sells for $38 per share; the next expected dividend, D₁, is $4.50; and the dividend is expected to grow at a constant rate of 4% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock.

1. What is the cost of each of the capital components? Do not round intermediate calculations. Round your answers to two decimal places.
   Cost of debt:   %
   Cost of preferred stock:   %
   Cost of retained earnings:   %

1. What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places.
     %
   
2. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept?

   Project 1	accept/reject
   Project 2	accept/reject
   Project 3	accept/reject
   Project 4	accept/reject

A financial derivative is guaranteed to be worth $110.00 in 20 months. Assume the risk-free rate is 5.9%.

(a) What is the derivative worth today?

(b) Describe an arbitrage opportunity if the derivative is trading at $70.00 today. This should only involve one of the derivatives. What is your guaranteed profit in 20 months from the arbitrage?

you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 36%. The T- Bill rate is 6%

your risky portfolio includes the following investments in the given proportions:

stock a 27%

stock b 35%

stock c 38%

suppose that your client decided to invest in your portfolio a proportion y of the total investment budget so that the overall portfolio will have an expected rate of return of 15%

A. what is the proportion of y?

B. What are your client's investment proportions in your three stocks and T- bill fund?

C. What is the standard deviation of the rate of return on your client's portfolio?

Quisco Systems has 6.66.6 billion shares outstanding and a share price of $ 17.41 Quisco is considering developing a new networking product in house at a cost of $ 467

million.​ Alternatively, Quisco can acquire a firm that already has the technology for $ 939

million worth​ (at the current​ price) of Quisco stock. Suppose that absent the expense of the new​ technology, Quisco will have EPS of $ 0.82

a. Suppose Quisco develops the product in house. What impact would the development cost have on​ Quisco's EPS? Assume all costs are incurred this year and are treated as an​ R&D expense,​ Quisco's tax rate is 35% and the number of shares outstanding is unchanged.

b. Suppose Quisco does not develop the product in house but instead acquires the technology. What effect would the acquisition have on​ Quisco's EPS this​ year? (Note that acquisition expenses do not appear directly on the income statement.

Assume the firm was acquired at the start of the year and has no revenues or expenses of its​ own, so that the only effect on EPS is due to the change in the number of shares​ outstanding.)

c. Which method of acquiring the technology has a smaller impact on​ earnings? Is this method​ cheaper? Explain.