1. Firm X is being acquired by Firm Y for $35,000 worth of Firm Y stock (valued at the pre-merger current price of Y). Both firms are “all-equity” financed. The incremental value created by the merger is $2,500. Firm X has 2,000 shares of stock outstanding at $16 per share. Firm Y has 1,200 shares of stock outstanding at a price of $40 per share. What is the actual cost of the acquisition to Firm Y using company stock? Why is the actual cost less than $35,000?

Discount Bonds

Discount bonds such as Treasury bills have no stated interest rate. They are sold at a discount from face value, F. The yield or nominal interest rate is the percentage increase above the purchase price, P. The yield, i, is found as

                i = ((F – P)/P) * 100

You multiply by 100 to convert the decimal to a percentage.

An example:

Assume F = 1000 and P = 950 for a 1-year discount bond. Its yield is

         ((1000-950)/950)*100

         = (50/950)* 100

         = (0.0526) * 100

         = 5.26%

1. For a 1-year discount bond, if F =1000 and P = 950, the yield is

___5.26%________?

2. For a 1-year discount bond, if F =2000 and P = 1950, the yield is

____2.56%________?

3. If a one-year $10,000 discount bond has a yield of 5%, its price is ___$95281_______?

(Hint, find the present value of the bond using its yield.)

4. If a two-year discount bond has a face value of $5000 and a yield of 3%, its price is __________?

Rate of Return

5. If a bond has a current yield of 4% and a capital gain of 3%, its rate of return is _______?

6. If a bond has a current yield of 6% and a rate of return of 4%, it has a _____ capital gain or loss.

7. If a bond has a 2% rate of return and a capital loss of 4%, its current yield is ________?

Real and Nominal Interest Rates

8. If the nominal interest rate is 3% and expected inflation is -1%, the real interest rate is ___________?

9. If the nominal interest rate is 6%, the expected rate of inflation is 5% and the actual rate of inflation is 3%, the ex post real interest rate is __________?

10. If the expected rate of inflation is 4% and the ex ante real interest rate is 4%, the nominal interest rate is _______?

You own a 10-acre vineyard and earn income by selling your grapes to wineries. Your vineyard is currently planted to Merlot grapes, but you are thinking of replanting with Syrah grapes because they are commanding a higher market price per ton. Merlot fetches $2000 per ton but Syrah sells for $2400 per ton, those prices are expected to remain stable, and you produce 5 tons per year per acre (so 50 tons per year total). Either way, you plan to sell the vineyard 5 years from now (at the end of the year) for 6-times (6x) the annual income (in year 5) from the sale of grapes (that is, you'll get the income from grape sales and then sell the vineyard for 6 times that amount at the end of year 5). However, if you switch to Syrah, it will cost you $83,000 immediately and the vines won’t produce any grapes until year 4 (that is, years 1-3 will have no sales if you plant Syrah, but years 4 and 5 will). The applicable discount rate is 14% per year. What is the NPV of switching? Round to the nearest cent. ​[Hint: Create a timeline showing the incremental annual cash flows from switching and find their NPV. Some cash flows will be negative (first 3 years) and some (years 4 and 5) will be positive.]

Read PepsiCo’s (NYSE:PEP) most recent 10-K (2019-2-15), its Proxy (DEF 14 A, 2019-3-22 and answer or produce the following:go to www.sec.gov/edgar/searchedgar/companysearch.html and search for Pepsi

1. As an analyst and using the Company’s “Long-term debt obligations” schedule as a guideline, what would you estimate the Company’s cost of borrowing to be?

2. Pepsico manages its business in “reportable segments”. List them.

3. Which is the largest segment in terms of revenue? In terms of operating profit

4. As an analyst, which two risk factors (Risk Factors Item 1a) do you consider the most important? Please ensure that your answer includes your reasoning why?

5. What was the Company’s “free cash flow” in 2018 and 2017?

6. “Operations outside of the United States generated” what percent of the Company’s consolidated net revenue?Go to

Comco Inc issued bonds that have a 8.5% coupon rate, payable semiannually. The bonds mature in 12 years, have a $1,000 face value and a 12% yield to maturity.

1.. What is the price of the bonds?

2. Exactly two years later, you observe the bonds trading at $925, what is the yield to maturity?

Derek borrows $39,587.00 to buy a car. He will make monthly payments for 6 years. The car loan has an interest rate of 6.43%. After a 14.00 months Derek decides to pay off his car loan. How much must he give the bank?

Suppose you deposit $1,974.00 into an account today that earns 15.00%. It will take ___ years for the account to be worth $2,535.00

Lara is a security analyst with Texas City brokerage firm. Lara has been following one of the hottest issues on Wall Street, M&I Medical supplies, a company that has turned outstanding performance and showed excellent potential growth. It has 5 million shares outstanding and pays an annual dividend of $0.05 per share. Lara showed her interest in investing in M&I. Assume the company sales for the past five years have been as follows:

Year Sales ($ million)

2012 - 10.0
2013 - 12.5
2014 - 16.2
2015 - 22.0
2016 - 28.5

Lara relates to the prospects of the company, not its past. As a result, she generates the following estimate of future performance:

Expected Net Profit Margin =12%
Estimated annual dividend per share = 5c
Number of share s outstanding = No change
P/E ratio at the end of 2017 = 35
P/E ratio at the end of 2018 = 50

Questions:
1. Determine the annual average growth in sales over the past five years. (Assume sales in 2011 amounted to $7.5 million.)
2. Use the average growth rate to forecast revenue for next year (2017) and the year after (2018).
3. Determine the company’s net earnings and EPS for the year 2017 and 2018.
4. Determine the expected future price of the stock at the od 2017 and 2018.
5. Because of several intrinsic and market factors, Lara feels that 25%is a viable figure to use for a desired rate of return.
a. Using a 25% rate of return and forecasted figures, compute the stock’s justified price.
b. If M&I is currently trading at $32.50 per share, should Lara consider the stock a worthy investment? Explain.

5. Monicaclinton Ltd., a wholesale importer, is in the process of issuing $6,000,000 of 12% coupon debt with a maturity of 5 years. A sinking fund must be established to retire 60% of the issue prior to maturity. Assuming the bonds are retired at par and the tax rate is 35%, how large must the annual sinking fund payments be if the firm wishes to retire the bonds in equal installments over 4 years starting one year from now? What will be the annual after-tax cash outflow for each of the 5 years?

Finding operating and free cash flows   Consider the balance sheets and selected data from the income statement of Keith Corporation that follow

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.

a. Calculate the​ firm's net operating profit after taxes​ (NOPAT) for the year ended December​ 31,

2019

2019.

b. Calculate the​ firm's operating cash flow​ (OCF) for the year ended December​ 31,

2019

2019.

c. Calculate the​ firm's free cash flow​ (FCF) for the year ended December​ 31,

2019

2019.

d.​ Interpret, compare and contrast your cash flow estimate in parts​ (b) and​ (c).

Assume that you are providing financial advice to a well-diversified Australian investor, Mr. Rex Sandilands, a full-time biology secondary school teacher and part-time wrestler. Mr. Sandilands is seeking to undertake further investment in any or all of the companies included on the following page, which are each included in the Australian Securities Exchange’s ASX 200 Index. To assist your investment decision-making process, you have been provided the following information:

• the forecast expected return on the Australian Stock Exchange’s ASX 200 Index will be approximately 10% over the next year

• on average, the ASX 200 Index has produced returns approximately 4% in excess of risk-free Australian securities

The relevant Australian companies under consideration are:

• Foxwedge Mining (beta of 1.2) having an expected rate of return of 11.5%

• Sirpinz Holdings (beta of 0.8) having an expected rate of return of 11.5%

• Galilee Trading (beta of 2.0) having an expected rate of return of 12.5%

Required:

1. Given the above information, what is the required rate of return for each of the companies discussed above?
2. In practice, beta values are available from public sources, either at no or at a nominal charge. If you did not however have access to these beta values as given in the question, briefly explain how would you determine such beta values for each of these companies?

Hint: What processes would you use to assess a beta value for each company? (Students should write no more than 100 words for this part of the question).

3. Using all of the information included in this question, would you recommend investment in any or all of the companies discussed above by Mr. Sandilands? Briefly justify your discussion using terminology understandable to Mr. Sandilands, given that, although he is a well-diversified investor, Mr. Sandilands has only a very introductory understanding of finance principles and theory. That is, provide Mr. Sandilands with a convincing argument in favour of / rejection of, the individual companies under consideration.

(Students should write no more than 150 words for this part of the question).

4. Regardless of the advice provided in part c) of this question, assume that Mr. Sandilands subsequently invested $360,000 in a portfolio of the relevant companies comprised as follows:

• Foxwedge Mining $180,000

• Sirpinz Holdings $145,000

• Galilee Trading    $35,000

Under these circumstances what would be Mr. Sandilands: i) portfolio required rate of return? and ii) portfolio beta?

5. Briefly comment on how you might use the calculations undertaken in part d) of this question to assist Mr. Sandilands in the future given his decision to invest in the portfolio. That is, having performed the calculations in part d) of this question, of what use are they as a decision-making tool?

(Students should write no more than 100 words for this part of the question).

6. What is the relevance in this question to the statement that; “Mr. Sandilands is a well-diversified Australian investor”? Hint: How does the above statement allow students to progress with the various calculations / discussion included in this question?

（对于这部分问题，学生应该写不超过75个单词）。（3分）