Suppose Chance Chemical Products management conducts a study and concludes that if it expands into a consumer products division (which is less risky than its primary business of industrial chemicals), the firm's beta would decline from 1.2 to 0.9.  However consumer products have a somewhat lower profit margin, and this would cause Chance's constant growth rate in earnings and dividends to fall from 7 to 5 percent. Should management undertake this change assuming that the average market return is 12% will the rate on Treasury notes is 9%?  Chance has just paid a dividend of $2.

Write your recommendation taking into account some of the general issues involved in the assessment (eg. principles involved in company diversification, estimation of beta's etc.)

Describe impacts on the 3 financial statements (balance sheet, income statement and cash flow statement) of:

a. An increase of accounts receivables by $100 b. An increase of accrued expenses by $100
c. A decrease of prepaid expenses by $100
d. An increase in inventory by $100 (paid in cash)

e. An increase in depreciation by $100

f. A sale of equipment for $200 (value on the balance sheet: $170)

Remark: consider all above questions as independent of each other.

You are considering a proposal to produce and market a new sluffing machine. The most likely outcomes for the project are as follows:

Expected sales: 30,000 units per year

Unit price: $50

Variable cost: $30

Fixed cost: $300,000

The project will last for 10 years and requires an initial investment of $1 million, which will be depreciated straight-line over the project life to a final value of zero. The firm’s tax rate is 30%, and the required rate of return is 12%.

However, you recognize that some of these estimates are subject to error. Sales could fall 30% below expectations for the life of the project and, if that happens, the unit price would probably be only $40. The good news is that fixed costs could be as low as $200,000, and variable costs would decline in proportion to sales.

a. What is project NPV if all variables are as expected? (Do not round intermediate calculations. Enter your answer in thousands not in millions and round your answer to the nearest whole dollar amount.)

b. What is NPV in the worst-case scenario? (Do not round intermediate calculations. Enter your answer in thousands not in millions and round your answer to the nearest whole dollar amount. Negative amount should be indicated with a minus sign.)

Look at the cash flows for projects F and G given below.

The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to take the time to argue with the projects’ sponsors, instructs them to use a discount rate of 18%.

a. What are the projects’ true NPVs? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)

b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)

You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already decided in favor of the plaintiff. You are the foreperson of the jury and propose that the jury give the plaintiff an award to cover the following: (a) The present value of two years’ back pay. The plaintiff’s annual salary for the last two years would have been $36,000 and $39,000, respectively. (b) The present value of five years’ future salary. You assume the salary will be $43,000 per year. (c) $100,000 for pain and suffering. (d) $15,000 for court costs. Assume that the salary payments are equal amounts paid at the end of each month. If the interest rate you choose is an EAR of 8 percent, what is the size of the settlement?

Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $120 million and a YTM of 10 percent. The company’s market capitalization is $260 million and the required return on equity is 15 percent. Joe’s currently has debt outstanding with a market value of $25.5 million. The EBIT for Joe’s next year is projected to be $17 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 35 percent.

What is "diversification" as it relates to the business environment? How is it useful in the financial environment?

1)The current cost of graduate school tuition is $15,000 per year.
The cost of tuition is rising at 6.00% per year.
You plan to attend graduate school for 2 years starting 2 years from now.

How much do you have to invest today if your savings account earns 3.00% APR compounded annually to just fund your tuition?

Group of answer choices

A) $31,323

B) $32,754

C) $32,236

D) $30,437

2) You would like to purchase a vacation home in 6 years.
The current price of such a home is $500,000 but the price of these types of homes is rising at a rate of 3% per year.
How much would you have to invest today in nominal terms to exactly pay for the vacation home if your investments earn 5% APR (compounded annually) in nominal terms?

Group of answer choices

A) $445,510

B) $461,548

C) $373,108

D) $597,026

The current price of Kinston Corporation stock is $10. In each of the next two years, this stock price can either go up by $3.00 or go down by $2.00. Kinston stock pays no dividends. The one year risk-free interest rate is 5% and will remain constant. Using the binomial pricing model, calculate the price of a two-year call option on Kinston stock with a strike price of $9.

Show calculations.

Axis Corp. is considering an investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing​ system; it will cost ​$45,000 and generate cash inflows of ​$25,000 per year for the next 3 years. Project Thompson involves replacement of the existing​ system; it will cost ​$265,000 and generate cash inflows of ​$60,000 per year for 6 years. Using​ a(n) 10.59​% cost of​ capital, calculate each​ project's NPV, and make a recommendation based on your findings.

1. Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $34,950,000, with the promise to buy them back at a price of $35,000,000.

a. Calculate the yield on the repo if it has a 5-day maturity.

b. Calculate the yield on the repo if it has a 16-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your answers to 5 decimal places. (e.g., 32.16161))

2. Suppose you purchase a T-bill that is 130 days from maturity for $9,710. The T-bill has a face value of $10,000.

a. Calculate the T-bill’s quoted discount yield.
b. Calculate the T-bill’s bond equivalent yield.

(For all requirements, use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your answers to 3 decimal places. (e.g., 32.161))