A financial services company has a long list of potential projects to consider this year. Managers at this company must decide which projects to pursue and how to define the scope of the projects selected for approval. The company has decided to use a weighted scoring model to help in project selection, using criteria that map to corporate objectives. All projects selected must develop a WBS using corporate guidelines.

You are part of a team that will analyze proposals and recommends which projects to pursue. Your team has decided to create a weighted scoring model using the following criteria and weights:

• Criteria Weight 1
• Enhances new product development 20% 2
• Streamlines operations 20% 3
• Increases cross-selling 25% 4
• Has good NPV 35%

To determine the score for the last criterion, your team has developed the following scoring system:

• NPV is less than 0, the score is 0
• NPV is between 0 and $100,000, the score is 25
• NPV is between $100,000 and $200,000, the score is 50
• NPV is between $200,000 and $400,000, the score is 75
• NPV is above $400,000, the score is 100

The following is information for three potential projects:

• Project 1:
  • Scores for criteria 1, 2, and 3 are 10, 20, and 80, respectively
  • Estimated costs the first year are $500,000, and costs for years 2 and 3 are $100,000 each
  • Estimated benefits for years 1, 2, and 3 are $200,000, $400,000, and $600,000, respectively
• Project 2:
  • Scores for criteria 1, 2, and 3 are all 50
  • Estimated costs the first year are $700,000, and costs for the second year are $200,000
  • Estimated benefits for years 1 and 2 are $300,000 and $700,000, respectively
• Project 3:
  • Scores for criteria 1, 2, and 3 are 0, 50, and 80, respectively
  • Estimated costs the first year are $300,000, and costs for years 2, 3, and 4 are $100,000 each
  • Estimated benefits for years 1, 2, 3, and 4 are $0, $600,000, $500,000, and $400,000, respectively

• Develop a spreadsheet to calculate the NPVs and weighted scores for the three projects
• Use a 10 percent discount rate for the NPV calculations

You are interested in two investment, Fidelity Capital and Income (FAGIX) , and Fidelity Low Price Stock Fund (FLPKX). The followings are their 12 month returns in 2017 that I have recorded from finance.yahoo.com :

1. What are the average returns of the two funds?

2. What are the return volatilities of the two funds?

3. Compute the covariance and correlation between returns of the two funds.

4. Plot the returns of FLPSX against the returns of FAGIX (using Excel) . Do you see a relationship

between the two? From Fin6301, why do you think there is or is not a relation?

5. Compute the regression line: RFLPKX = α + β * RFAGIX , using the formulas in Lecture Note 1, and

plot the line on the same graph in (d). What do you observe?

6. Using regression analysis in Excel, find the linear relationship between the returns of the two

funds, i.e. regressing returns of FLPKX on returns of FAGIX.

There are two stocks, A and B. In Fin6301, we have discussed the concept of a portfolio, which is just a basket of several stocks. Under any circumstance, if you invest 40% of your money in Stock A and the rest (60%) in Stock B, the portfolio return Rp = 40%*RA+60%*RB. Suppose the possible returns next year and the corresponding probabilities are given as follows,

Your financial advisor recommended two portfolios constructed using both stocks with portfolio P1 investing 20% in Stock A, while portfolio P2 investing 60% in Stock A.

(a) What are the returns of each portfolio in each state of the economy?

(b) What are the expected returns for stocks A and B, and portfolios P1 and P2, i.e., E(RA), E(RB),

E(Rp1), and E(Rp2)?

(c) Comparing Stock A with portfolio P2, will you be better off by holding the portfolio? (hint: also

consider their volatilities)

(d) Comparing Stock B with portfolio P1, does reduction in volatility justify loss in expected return

when holding the portfolio?

Question 1:What is the rationale for the positive correlation between risk and expected return?

Question 2: Why is it possible to eliminate unsystematic risk in a well-diversified portfolio? Likewise, why is it not possible to eliminate systematic risk?

Provide a solution to this problem. Any ideas on how it can be solved.  

Comprehensive problem (discussion board):

•        Current Accounts

–       2009: CA = $4,400; CL = $1,500

–       2008: CA = $3,500; CL = $1,200

•        Fixed Assets and Depreciation

–       2009: NFA = $3,400; 2008: NFA = $3,100

–       Depreciation Expense = $400

•        Long-term Debt and Equity

–       2009: LTD = $4,000; Common stock = $500

–       2008: LTD = $3,950; Common stock = $400

•        Income Statement

–       EBIT = $2,000; Taxes = $300

–       Interest Expense = $350

•        If the Cash Flow Identity holds, compute the dividends paid out by the company.

Discounted Cash Flow Valuation

You and your spouse begin immediately saving for retirement and the dreamy “ever after” that you need to fund. At this point, your “ever after” fund has a balance of $0. You begin depositing $300 each month, starting one month from now, for the next 30 years. Your spouse begins depositing $5,000 each year, starting one year from now, into the same account for the next 30 years. The joint account earns 9 percent APR, compounded monthly. How much will you two have in your joint account 30 years from now, immediately after your last deposits?

Part B Your “ever after” is expected to be funded by monthly withdrawals, starting one month after your last deposits, and it is expected to last for 35 years. How much will you two (collectively) have to happily spend each month, assuming your accounts continue to earn the same rate as before?

Amortize a 30-year, $120,000 loan with end-of-month payments. The APR is 12%. What is the monthly payment? What are the interest and repayment portions of the payment in month 12? What is the ending balance after one year (month 12)?  

Part A: You make a cash purchase of 100 shares of a stock at $55 per share. You hold the stock for one year, during which dividends of $5 a share are distributed. Commissions are 2 percent of the value of a purchase or sale.

Assume all of the same conditions of the transaction as in part a (i.e. stock purchase price, dividends, commission) but now you make the purchase using margin. If the Margin Requirement is 60% and the interest rate on borrowed funds is 10%, what is your percentage earned at the following prices:

1. $60

2. $70

You have $12,500 you want to invest for the next 30 years. You are offered an investment plan that will pay you 7 percent per year for the next 10 years and 9.5 percent per year for the last 20 years. How much will you have at the end of the 45 years?

Please provide an Office Excel formula in your answer.

Amount of annuity-$32,000

Interest rate-9%

Period (years)-11

a. Calculate the present value of the annuity assuming that it is ​(1) An ordinary annuity. ​(2) An annuity due.

b. Compare your findings in parts a​(1) and a​(2). All else being​ identical, which type of annuity—ordinary or annuity due—is ​preferable? Explain why.

Marian Kirk wishes to select the better of two 9​-year annuities. Annuity 1 is an ordinary annuity of ​$2810 per year for 9 years. Annuity 2 is an annuity due of ​$2600 per year for 9 years.

a. Find the future value of both annuities at the end of year 9​, assuming that Marian can earn​ (1) 8​% annual interest and​ (2) 16​% annual interest.

b. Use your findings in part a to indicate which annuity has the greater future value at the end of year 9 for both the​ (1) 8 % and​ (2) 16​% interest rates..

c. Find the present value of both​ annuities, assuming that Marian can earn ​(1) 8​% annual interest and​ (2) 16​% annual interest.

d. Use your findings in part c to indicate which annuity has the greater present value for both the​ (1) 8​% and​ (2) 16​% interest rates.

e. Briefly​ compare, contrast, and explain any differences between your findings using the 8​% and 16​% interest rates in parts b and d.