Expedition manufacturers a variety of specialty clothing for skiing and mountain climbing. The company has decided to begin production on two new parkas designed for use in extremely cold weather: the Mount Everest Parka and the Rocky Mountain Parka. Expedition’s manufacturing plant only has 120 hours of cutting time and 140 hours of sewing time available. There is plenty of material to make the coats, except the fact that the zipper union is on strike and there are only 340 zippers. Because management believes that the Mount Everest Parka is a unique coat that will enhance the image of the firm, management has specified that at least 80 of this model must be produced. Each Mount Everest Parka requires 30 minutes of cutting time and 45 minutes of sewing time; the Labor and Material cost is $150 and the retail price is $250. Each Rocky Mountain Parka requires 20 minutes of cutting time and 15 minutes of sewing time; the Labor and Material cost is $50 and the retail price is $200. How many units of each model should be produced?

Using Solver in Excel, how do you put this in?

Pistol Pete's Platinum Palace has outstanding 5 year corporate bonds with a current yield of 6.50%. 5-Year T-Bonds have a current yield of 4.00%. The default risk premium for Pete's bonds is DRP = 0.40%. The liquidity premium on Pete's bonds is 1.70%. The current inflation premium is 1.5% and the maturity risk premium on 5 year bonds is 0.40%. What is the real risk-free rate, r*?

The management estimates total sales for the period January, 2019 through June, 2019 based on actual sales from the immediate past six months. The following assumptions are made:  The Sales were $140,000 in July 2018 and then the sales grew by 2% each month in the first three months (i.e., from August to October 2018) and by 5% in the next two months (i.e., in November and December 2018). The sales are expected to grow by 1% each month thereafter.  35% of the Sales are collected in the same month. 33% of the sales are collected in the following month. 31% of the sales are collected after two months and the remainder are not collected.  The Purchases are 70% of each month’s sales and paid in the same month.  Wages and Salaries are $25,000 each month and paid in the same month.  Other administrative expenses are $15,000 and paid in the same month.  Depreciation expense is $5,000 each month.  An electrical device worth $30,000 will be purchased in April 2019. 50% of the amount due will be paid immediately and the balance will be paid in May, 2019.  The company had previously taken a loan of $125,000. The annual interest rate on the loan amount is 5%. The interest is paid twice a year in June and December each year. Assume that no principal repayments are made in this period, only interest payments are made.  The company pays rent of $3,500 quarterly (in March, June, September, and December each year).

Questions: 1. Determine the total cash inflows, the total cash outflows, and the expected change in cash for each month from January to July, 2019. Show your work in excel using excel functions. Based the findings, explain in your own words whether the company should borrow/invest and how much and in which months. [4.50 points]

2. Describe in your own words some of the short-term borrowing options that the company may adopt. Please write your answer in another tab on the same excel file, no need to upload another Word Document file or type your answer elsewhere. [0.50 points]

National Advertising just paid a dividend of D₀ = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.35, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?

You are contemplating an investment in a new factory expected to generate revenues of $1 million per year for as long as you maintain it. You expect maintenance costs will begin at $500,000 per year and increase by 5% per year into the future. Given that the series of revenue and maintenance costs are end-of-year cash flows, you plan to run the operation as long as positive cash flows continue. Assume the factory can be operational immediately for a cost of $3.5 million. If the interest rate is 2.5% per year, should you invest in the factory?

Five years ago you took out a​ 5/1 adjustable rate mortgage and the​ five-year fixed rate period has just expired. The loan was originally for

$300,000 with 360 payments at 4.2% APR, compounded monthly.

a. Now that you have made 60 payments, what is the remaining balance on the​ loan?

b. If the interest rate increases by 1%​, to 5.2% APR, compounded​ monthly, what will be your new​ payments?

a. Now that you have made

60 payments, what is the remaining balance on the​ loan? The remaining balance on the loan is? (Round to the nearest​ cent.)

Stewart Inc.'s latest EPS was $3.50, its book value per share was $22.75, it had 162,500 shares outstanding, and its debt-to-assets ratio was 46%. How much debt was outstanding?

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 sure rate of 4.3%. The probability distributions of the risky funds are:   

The correlation between the fund returns is .0630.

Suppose now that your portfolio must yield an expected return of 11% and be efficient, that is, on the best feasible CAL.

a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Standard deviation             %

b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Proportion invested in the T-bill fund             %

b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Intelligence Incorporated produces 100 computer chips and sells them for $300 each to Bell Computers. Using the chips and other labor and materials, Bell produces 100 personal computers. Bell sells the computers, bundled with software that Bell licenses from Macrosoft at $50 per computer, to PC Charlie’s for $800 each. PC Charlie’s sells the computers to the public for $1,000 each. Calculate the total contribution to GDP using the value-added method.

​(Related to Checkpoint​ 5.2)  

​(Compound interest with​ non-annual periods​)

You just received a bonus of ​$1,000.

a.Calculate the future value of $1,000​, given that it will be held in the bank for 6 years and earn an annual interest rate of 3

percent.

b.Recalculate part

​(a​) using a compounding period that is​ (1) semiannual and​ (2) bimonthly.

c.Recalculate parts ​(a​) and ​(b​) using an annual interest rate of 6 percent.

d.Recalculate part ​(a​) using a time horizon of 12 years at an annual interest rate of 3 percent.

e.What conclusions can you draw when you compare the answers in parts ​(c​) and ​(d​) with the answers in parts ​(a​) and ​(b​)?

a.What is the future value of $1 comma 000in a bank account for 6 years at an annual interest rate of 3 percent?

​$__ (Round to the nearest​ cent.)

b. What is the future value of $1,000 in a bank account for 6 years at 3 percent compounded​ semiannually?

​$___ ​(Round to the nearest​ cent.)

What is the future value of $1,000 in a bank account for 6 years at 3 percent compounded​ bimonthly?

​$__ (Round to the nearest​ cent.)

c.What is the future value of $1,000 in a bank account for 6 years at an annual interest rate of 6 ​percent?

​$___ ​(Round to the nearest​ cent.)

What is the future value of $1,000 in a bank account for 6 years at 6 percent compounded​ semiannually?

​$___ ​(Round to the nearest​ cent.)

What is the future value of ​$1,000 in a bank account for 6 years at 6 percent compounded​ bimonthly?

​$____ (Round to the nearest​ cent.)

d.What is the future value of $1,000 in a bank account for 12 years at an annual interest rate of 3 percent?

​$____ ​(Round to the nearest​ cent.)

e.With respect to the effect of changes in the stated interest rate and holding periods on future​ sums, which of the following statements is​ correct?  ​(Select the best choice​ below.)

A. An increase in the stated interest rate will increase the future value of a given sum. ​ Whereas, an increase in the length of the holding period will decrease the future value of a given sum.

B. An increase in the stated interest rate will decrease the future value of a given sum. ​ Whereas, an increase in the length of the holding period will increase the future value of a given sum.

C. An increase in the stated interest rate will increase the future value of a given sum. ​ Likewise, an increase in the length of the holding period will increase the future value of a given sum.

D. An increase in the stated interest rate will decrease the future value of a given sum. ​ Likewise, an increase in the length of the holding period will decrease the future value of a given sum.

Rebecca is interested in purchasing a European call on a hot new​ stock, Up, Inc. The call has a strike price of $ 99.00 and expires in 85 days. The current price of Up stock is $ 122.42​, and the stock has a standard deviation of 43 % per year. The​ risk-free interest rate is 6.62 % per year. Up stock pays no dividends. Use a​ 365-day year. a. Using the​ Black-Scholes formula, compute the price of the call. b. Use​ put-call parity to compute the price of the put with the same strike and expiration date. ​(Note​: Make sure to round all intermediate calculations to at least five decimal places.​) ​

Using the​ Black-Scholes formula, compute the price of the call.

The price of the call is ​$___________.​(Round to two decimal​places.)

b. Use​ put-call parity to compute the price of the put with the same strike and expiration date.

The price of the put is ​$___________.​ (Round to two decimal​places.)

Decision #1: Which set of Cash Flows is worth more now? Assume that your grandmother wants to give you generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive: Option A: Receive a one-time gift of $ 10,000 today. Option B: Receive a $1500 gift each year for the next 10 years. The first $1400 would be received 1 year from today. Option C: Receive a one-time gift of $18,000 10 years from today. Compute the Present Value of each of these options if you expect the interest rate to be 3% annually for the next 10 years. Which of these options does financial theory suggest you should choose? Option A would be worth $__________ today. Option B would be worth $__________ today. Option C would be worth $__________ today. Financial theory supports choosing Option _______ Compute the Present Value of each of these options if you expect the interest rate to be 6% annually for the next 10 years. Which of these options does financial theory suggest you should choose? Option A would be worth $__________ today. Option B would be worth $__________ today. Option C would be worth $__________ today. Financial theory supports choosing Option _______ Compute the Present Value of each of these options if you expect to be able to earn 9% annually for the next 10 years. Which of these options does financial theory suggest you should choose? Option A would be worth $__________ today. Option B would be worth $__________ today. Option C would be worth $__________ today. Financial theory supports choosing Option _______ Decision #2 begins at the top of page 2! Decision #2: Planning for Retirement Erich and Mallory are 22, newly married, and ready to embark on the journey of life. They both plan to retire 45 years from today. Because their budget seems tight right now, they had been thinking that they would wait at least 10 years and then start investing $3000 per year to prepare for retirement. Mallory just told Erich, though, that she had heard that they would actually have more money the day they retire if they put $3000 per year away for the next 10 years - and then simply let that money sit for the next 35 years without any additional payments – then they would have MORE when they retired than if they waited 10 years to start investing for retirement and then made yearly payments for 35 years (as they originally planned to do). Please help Erich and Mallory make an informed decision: Assume that all payments are made at the END a year (or month), and that the rate of return on all yearly investments will be 7.2% annually. (Please do NOT ROUND when entering “Rates” for any of the questions below) a) How much money will Erich and Mallory have in 45 years if they do nothing for the next 10 years, then put $3000 per year away for the remaining 35 years? b) How much money will Erich and Mallory have in 10 years if they put $3000 per year away for the next 10 years? b2) How much will the amount you just computed grow to if it remains invested for the remaining 35 years, but without any additional yearly deposits being made? c) How much money will Erich and Mallory have in 45 years if they put $3000 per year away for each of the next 45 years? How much money will Erich and Mallory have in 45 years if they put away $250 d) per MONTH at the end of each month for the next 45 years? (Remember to adjust 7.2% annual rate to a Rate per month!) e) If Erich and Mallory wait 25 years (after the kids are raised!) before they put anything away for retirement, how much will they have to put away at the end of each year for 20 years in order to have $1,000,000 saved up on the first day of their retirement 45 years from today?

Problem 5-22
Yield to Maturity and Yield to Call

Arnot International's bonds have a current market price of $1,200. The bonds have an 12% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (Call price = $1,090).

1. What is the yield to maturity? Round your answer to two decimal places.
   %
2. What is the yield to call, if they are called in 5 years? Round your answer to two decimal places.
   %
3. Which yield might investors expect to earn on these bonds, and why?
   -Select-IIIIIIIVItem 3
   I. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
   II. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
   III. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.
   IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
4. The bond's indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
   -Select- in Year 6in Year 7in Year 8in Year 9Bonds are always called