A company with a tax rate of 40% borrows $100M from lender A at a cost of 8% and $300M from lender B at a cost of 6%. What is the firm’s aggregate cost of borrowing (a) before taxes; and (b) after taxes?

2. Suppose there are two bonds for sale; Bond ART with 7-years to maturity, paying a semi-annual interest payment of $57.75, and available for purchase at $1,017.63; and then a second bond, Bond BMW, for sale at $989.54, maturing in 8-years, and paying $63.65 on a semi-annual basis. What is the YTM of the two bonds? And which one will you add to your portfolio based on the highest yield to maturity?

• YTM of ART = .1118 or 11.18%
• YTM of BMW = .1294 or 12.94%
• Select BMW

PLEASE show work. This is on my finance study guide and we are not allowed to use excel, I have to know how to do it by hand. Right above are the answers, just need to know how to get them

1. The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance):

   		Price
   	Shares (millions)		1/1/16			1/1/17			1/1/18
   Douglas McDonnell	180		$	60		$	64		$	77
   Dynamics General	325			68			64			78
   International Rockwell	370			97			86			100

   a. Calculate the initial value of the index if a price-weighting scheme is used. (Enter your answers rounded to 2 decimal places.)

   Index Value:

   b. What is the rate of return on this index for the year ending December 31, 2016? For the year ending December 31, 2017? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

   2016 Return: %

   2017 Return: %

If D/A is .35, according to the balance sheet identity what would be (a) D/E; and (b) the Equity Multiplier?

(B) Assume the following: Sales = $200M; Net Income = $10M; TA = $90M; and there is $0.50 in total debt per dollar of TA. According to the DuPont framework, the measure of operating efficiency would be _______; the measure of asset management efficiency would be _______; the measure of financial leverage would be ______; and the ROE would be _______?

You must select between two options that have a MARR of 12%. Option Red has an initial cost of $50,000 and annual benefits of $13,000 for the next six years. Option Blue has an initial cost of $70,000 and annual benefits of $15,250 for the next eight years. State here on Blackboard what option should be selected using an incremental ROR analysis. You must also state here on Blackboard the increment rate of return (in percent to 2 decimal places like 9.38%) you used to make the selection.

Rachel purchased a car for $18,500 three years ago using a 4-year loan with an interest rate of 9.0 percent. She has decided that she would sell the car now, if she could get a price that would pay off the balance of her loan.

What is the minimum price Rachel would need to receive for her car? Calculate her monthly payments, then use those payments and the remaining time left to compute the present value (called balance) of the remaining loan. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

QUESTION 1

1. A firm with variable-rate debt that expects interest rates to rise may engage in a swap agreement to:

QUESTION 2

1. Which following statement is INCORRECT?   

QUESTION 3

1. Lluvia Manufacturing and Paraguas Products both seek funding at the lowest possible cost. Lluvia is the more credit-worthy company. It could borrow at LIBOR+1% or it could borrow fixed at 8%. Paraguas could borrow fixed at 12% or it could borrow floating at LIBOR+2%.

Lluvia would prefer the flexibility of floating rate borrowing, while Paraguas wants the security of fixed rate borrowing.  What should they do?

QUESTION 4

1. What opportunity set for improvement in rate for Lluvia and Paraguas?

1. Calculate the NPV for the following project if the firm's cost of capital is 8.2%.

A.   $274,698
B.   $342,130
C.   $384,956
D.   $196,999

2.Assuming that the cash flows are reinvested at the company's cost of capital, which is 6.8%, what is the Modified Internal Rate of Return (MIRR) for the following project?

A.   4.127%
B.   9.836%
C.   10.241%
D.   6.507%

3.Calculate the Payback Period for the following investment.

A. 2.875 years
B.   2.325 years
C.   3.625 years
D.   4.175 years

QUESTION 41

1. Sally Homes invested in a diversified portfolio of equities about 5 years ago. Overall, the performance has been in line with the market. However, Stock A, which Sally has always thought was a good company, has recently been handily outperforming the averages. Despite recent news articles and analyst reports indicating a potential slowdown in earnings, Sally moved an additional 5% of her portfolio into Stock A. Which of the following behavioral mistakes may she have made?

   		a. Representativeness.
   		b. Cognitive dissonance.
   		c. Irrational escalation.
   		d. Both b & c.

QUESTION 42

1. John Bell, a money manager at a large regional investment firm, has been outperforming the market for several years. He's considering a large investment in Stock Q because the company's last three product introductions sold poorly. He thinks the company is well managed, but just had bad luck recently. He sorted through several analyst reports and found two that support his opinion. If he buys the stock, which behavioral mistakes may he be making? (1) Overconfidence. (2) Anchoring. (3) Gambler's fallacy. (4) Confirmation bias.

   		a. 1 and 2.
   		b. 2 and 3.
   		c. 1, 3 and 4.
   		d. 1, 2, 3 and 4.

QUESTION 5

1. A put option on UK pounds has a strike price of $2.05/£ and a cost of $0.02. What is the break-even price for the option?

QUESTION 6

1. Andrea Cujoli is a currency speculator who enjoys “betting” on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Andrea thinks the yen will move to ¥128.00/$ in the next six months. Andrea should _______ to profit from changing currency values.

QUESTION 7

1. A _______ is the term used to describe a foreign currency agreement between two parties to exchange a given amount of one currency for another, and after a period of time, to give back the original amounts.

QUESTION 8

1. An agreement to exchange interest payments based on a fixed payment for those based on a variable rate (or vice versa) is known as a/an:

QUESTION 9

1. Which following statement is Incorrect?

Corporation Income Statements (excerpt)

(dollars in millions) 2019 2018 Sales to customers $71,890 $70,074 Cost of products sold 21,685 21,536 Gross profit 50,205 48,538 Selling, marketing and administrative expenses 19,945 21,203 Research and development expense 9,095 9,046 In-process research and development 29 224 Interest income -368 -128 Interest expense, net of portion capitalized 726 552 Other (income)expense, net 484 -2,064 Restructuring 491 509 Earnings before provision for taxes on income 19,803 19,196 Provision for taxes on income 3,263 3,787 Net earnings $16,540 $15,409 Horizontal Analysis Compute the difference in each line item from 2018 to 2019. Using 2018 as a base year, determine the change and percentage change in each line item from 2018 to 2019. Did sales to customers increase or decrease from 2018 to 2019? Did net income increase for decrease from 2018 to 2019? What line item(s) is (are) driving the differences between sales to customers and net income from 2018 to 2019? Vertical Analysis Compute each line item as a percentage of sales for 2018 and 2019. Which line items makes up the largest proportion of sales in 2018 and 2019? (Keep in mind that some of the items like gross profit and earnings before provision for taxes on income are subtotals.) Comment of any changes in the income and expenses as a percent of sales from 2018 and 2019.

a. You have just purchased the options listed below. Based on the information given, indicate whether the option is in the money, out of the money, or at the money, whether you would exercise the option if it were expiring today, what the dollar profit would be, and what the percentage return would be. (Enter “0” if there is no profit or return from not exercising the option. Round your answer to 2 decimal places.)

b. Now suppose that time has passed and the stocks’ prices have changed as indicated in the table below. Recalculate your answers to part a.

You are attempting to value a put option with an exercise price of $105 and one year to expiration. The underlying stock pays no dividends, its current price is $105, and you believe it has a 50% chance of increasing to $122 and a 50% chance of decreasing to $88. The risk-free rate of interest is 10%. Calculate the value of a put option with exercise price $105. (Do not round intermediate calculations. Round your answer to 2 decimal places.)