Discuss and elaborate On each benefits of budgeting in regard to banks
*Defining objectives
*Planning
*Organizing
*Controlling
*Co- ordinating
*Communicating
*Motivating
In: Finance
What is the significance of “risk premium” to investors in selecting their investment portfolios and how does asset diversification affect market risk in an asset portfolio?
Explain each with examples.
In: Finance
What are the primary sources of market risk and the primary sources of diversifiable risk?
Explain both with examples.
In: Finance
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 rate of 5%. The probability distribution of the risky funds is as follows:
| Expected Return | Standard Deviation | |||||
| Stock fund (S) | 19 | % | 32 | % | ||
| Bond fund (B) | 12 | 15 | ||||
The correlation between the fund returns is 0.11.
You require that your portfolio yield an expected return of 14%, and that it be efficient, on the best feasible CAL.
a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.)
b. What is the proportion invested in the T-bill fund and each of the two risky funds? (Round your answers to 2 decimal places.)
T-bill funds :
Stocks:
Bonds:
In: Finance
What is the intrinsic price of a company and How is it determined? Explain with examples.
In: Finance
The Standard Deviation of stock returns for Stock A is 60% and The standard Deviation of market returns is 30% so If the statistical correlation between Stock A and the overall market is 0.6, then the beta for stock A is: 60%/30% x 0.6= 1.2
What is the expected risk premium for investors with this beta value compared to the market average for returns on investment?
In: Finance
|
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,270,000; the new one will cost $1,530,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $270,000 after five years. |
|
The old computer is being depreciated at a rate of $254,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $390,000; in two years, it will probably be worth $117,000. The new machine will save us $287,000 per year in operating costs. The tax rate is 23 percent and the discount rate is 11 percent. |
| a. |
Calculate the EAC for the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| b. |
What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
(Financial statement analysis) Carson Electronics' management has long viewed BGT Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheets and income statements for the two firms are found here: LOADING.... a. Calculate the following ratios for both Carson and BGT: Current ratio Times interest earned Inventory turnover Total asset turnover Operating profit margin Operating return on assets Debt ratio Average collection period Fixed asset turnover Return on equity b. Analyze the differences you observe between the two firms. Comment on what you view as weaknesses in the performance of Carson as compared to BGT that Carson's management might focus on to improve its operations. a. Calculate the following ratios for both Carson and BGT: Carson's current ratio is nothing. (Round to two decimal places.)
|
Carson Electronics, Inc. Balance Sheet ($000) |
BGT Electronics, Inc. Balance Sheet ($000) |
||||||
|
Cash |
$ 1 comma 950$1,950 |
$ 1 comma 510$1,510 |
|||||
|
Accounts receivable |
4 comma 4904,490 |
6 comma 0206,020 |
|||||
|
Inventories |
1 comma 5301,530 |
2 comma 5002,500 |
|||||
|
Current assets |
$ 7 comma 970$7,970 |
$ 10 comma 030$10,030 |
|||||
|
Net fixed assets |
15 comma 98015,980 |
24 comma 98024,980 |
|||||
|
Total assets |
$ 23 comma 950$23,950 |
$ 35 comma 010$35,010 |
|||||
|
Accounts payable |
$ 2 comma 550$2,550 |
$ 4 comma 990$4,990 |
|||||
|
Accrued expenses |
1 comma 0101,010 |
1 comma 5501,550 |
|||||
|
Short-term notes payable |
3 comma 4603,460 |
1 comma 5101,510 |
|||||
|
Current liabilities |
$ 7 comma 020$7,020 |
$ 8 comma 050$8,050 |
|||||
|
Long-term debt |
7 comma 9707,970 |
3 comma 9903,990 |
|||||
|
Owners' equity |
8 comma 9608,960 |
22 comma 97022,970 |
|||||
|
Total liabilities and owners' equity |
$ 23 comma 950$23,950 |
$ 35 comma 010$35,010 |
|||||
|
Carson Electronics, Inc. Income Statement ($000) |
BGT Electronics, Inc. Income Statement ($000) |
||||||
|
Net sales (all credit) |
$ 47 comma 950$47,950 |
$ 70 comma 030$70,030 |
|||||
|
Cost of goods sold |
( 35 comma 980 )(35,980) |
( 42 comma 050 )(42,050) |
|||||
|
Gross profit |
$ 11 comma 970$11,970 |
$ 27 comma 980$27,980 |
|||||
|
Operating expenses |
( 8 comma 040 )(8,040) |
( 11 comma 970 )(11,970) |
|||||
|
Net operating income |
$ 3 comma 930$3,930 |
$ 16 comma 010$16,010 |
|||||
|
Interest expense |
( 1 comma 180 )(1,180) |
( 500 )(500) |
|||||
|
Earnings before taxes |
$ 2 comma 750$2,750 |
$ 15 comma 510$15,510 |
|||||
| Income taxes
(40 %40%) |
( 1 comma 100 )(1,100) |
( 6 comma 204 )(6,204) |
|||||
|
Net income |
$ 1 comma 650$1,650 |
$ 9 comma 306$9,306 |
|||||
In: Finance
|
Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $355,000, has a 4-year life, and requires $145,000 in pretax annual operating costs. System B costs $435,000, has a 6-year life, and requires $139,000 in pretax annual operating costs. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 23 percent and the discount rate is 9 percent. |
|
Calculate the EAC for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| Which conveyor belt system should the firm choose? |
|
In: Finance
You are a consultant to a mid-sized manufacturing corporation
that is considering an investment project. The project requires an
initial investment of $100 million and will generate an after tax
cash of $20 million in the first year and the cash flow will
increase 5% thereafter every year (Please note that this is a
constant growing cash flow).The project’s beta is 1.5. Assuming
that rf=5% and E ( rM ) = 12%, Please answer the following
questions.
What is the net present value of the project ?
What is the highest possible discount rate for the project before
its NPV becomes negative ?
What is the highest possible beta estimate for the project before
its NPV becomes negative ?
In: Finance
|
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.35 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The project is estimated to generate $1,745,000 in annual sales, with costs of $648,000. The project requires an initial investment in net working capital of $320,000, and the fixed asset will have a market value of $285,000 at the end of the project. |
| a. | If the tax rate is 22 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) |
| b. | If the required return is 11 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) |
In: Finance
Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows:
| Stock | Expected Return | Standard Deviation | ||||||
| A | 11 | % | 6 | % | ||||
| B | 17 | 9 | ||||||
| Correlation = –1 | ||||||||
Suppose that it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer to 3 decimal places.)
In: Finance
Bombs Away Video Games Corporation has forecasted the following
monthly sales:
| January | $ | 97,000 | July | $ | 42,000 |
| February | 90,000 | August | 42,000 | ||
| March | 22,000 | September | 52,000 | ||
| April | 22,000 | October | 82,000 | ||
| May | 17,000 | November | 102,000 | ||
| June | 32,000 | December | 120,000 | ||
| Total annual sales = $720,000 | |||||
Bombs Away Video Games sells the popular Strafe and Capture video
game. It sells for $5 per unit and costs $2 per unit to produce. A
level production policy is followed. Each month's production is
equal to annual sales (in units) divided by 12.
Of each month's sales, 30 percent are for cash and 70 percent are
on account. All accounts receivable are collected in the month
after the sale is made.
a. Construct a monthly production and inventory
schedule in units. Beginning inventory in January is 22,000
units.
b. Prepare a monthly schedule of cash receipts. Sales in December before the planning year are $100,000.
c. Prepare a cash payments schedule for January through December. The production costs of $2 per unit are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $42,000 per month.
d. Prepare a monthly cash budget for January through December using the cash receipts schedule from part b and the cash payments schedule from part c. The beginning cash balance is $5,000, which is also the minimum desired. (Negative amounts should be indicated by a minus sign.)
In: Finance
Eastern Auto Parts Inc. has 30 percent of its sales paid for in
cash and 70 percent on credit. All credit accounts are collected in
the following month.
Assume the following sales:
| January | $ | 76,000 |
| February | 66,000 | |
| March | 111,000 | |
| April | 56,000 | |
Sales in December of the prior year were $86,000.
Prepare a cash receipts schedule for January through April
Sales
cash receipts
cash sales
prior months credit sales
total cash receipts
In: Finance
Lexton limited has anequity beta of 1.10. the market risk premium in zambia is expected to be 5% and the yield on government bonds is currently trading at K94.50 . The coupon rate is 8%. The maturity date is five years time and the corporation tax is rate is 28% . interest is payable annually in arrears , the company has just paid the coupon interest for the current year
a) what is lextons cost of equity based on the capital asset pricing model(CAPM)
b) what is the after cost of debt
c) lexton paid a dividend of K0.12 per share and the dividend per share is expected to grow at 7% indefinitely. The companys share price is K2.30 .What is the companys cost of equity.
d) what is the weighted average cost of capital (WACC) if the target debt -equity ratio is 50% ( use the cost of equity as per CAMP)
In: Finance