Consider the following regarding forward exchange rates. If the forward exchange rate on a 3 month contract is 0.904, and the spot rate is currently 0.851, the implied APR is ___%. Round your answer to three decimal places.

A firm is evaluating a new project that will last 4 years. The equipment needed for this project costs $180,000 and can be depreciated using straight-line depreciation over a 6-year useful life. This project will reduce sales of an existing product by $30,000 each year. Sales of this new project are expected to be $255,000 each year and variable costs are 85% of net sales. The project also requires fixed costs of $20,000 each year. The firm will use a manufacturing plant that they purchased 3 years ago for $275,000. Currently the market value of this plant is $250,000, after taxes. At the end of 4 years, itis expected that this plant will be worth $175,000, after taxes. The project requires less working capital than the firm currently has. At the beginning of the project, the firm will be able to reduce its total working capital by $15,000. At the end of the project, working capital will have to return to its previous level, before this project was started. The firm’s marginal tax rate is 35%andthe required return on this project is 10%. Should the firm accept this project? Why or why not?

Zemfira Inc., EBIT and Leverage. (Ross #1 ch.13) Zemfira Inc., has no debt outstanding and a total market value of $125,000. Earnings before interest and taxes are projected to be $10,400 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 35 percent lower. Zemfira is considering a $42,000 debt issue with a 6 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 6,250 shares outstanding. Ignore taxes for part a and b. a. Calculate EPS under each of three economic scenarios before any debt is issued. Also, calculate the percentage changes in EPS when the economy expands or enters a recession. b. Repeat part (a) assuming that Zemfira goes through with recapitalization. c. Repeat parts (a) and (b) assuming Zemfira has a tax rate of 35 percent. Will the percentage change in EPS be the same both with and without taxes? d. Suppose the company has a market-to-book ratio of 1.0 i. Calculate ROE under each of three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming no taxes. ii. Repeat part (a) assuming the firm goes through with proposed recapitalization. iii. Repeat parts (a) and (b) assuming the firm has a tax rate of 35 percent.

Parramore Corp has $11 million of sales, $2 million of inventories, $4 million of receivables, and $3 million of payables. Its cost of goods sold is 80% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
   days
2. 
   
3. If Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.
   days
4. 
   
5. How much cash would be freed up, if Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $
6. 
   
7. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $

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 4.6%. The probability distributions of the risky funds are:   

The correlation between the fund returns is .0800.

Suppose now that your portfolio must yield an expected return of 14% 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.)

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

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.)

A tractor for over-the-road hauling is purchased for $75,000.00. It is expected to be of use to the company for 6 years, after which it will be salvaged for $4,600.00. Calculate the depreciation deduction and the unrecovered investment during each year of the tractors life.

a) Use straight-line depreciation. Provide depreciation and book value for year 6.

b) Use declining-balance depreciation, with a rate that ensures the book value equals the salvage value. Provide depreciation and book value for year 6.

c) Use double declining balance depreciation. Provide depreciation and book value for year 6.

d) Use double declining balance, switching to straight-line depreciation. Provide depreciation and book value for year 6.

How are CAPM, the Fama-French model and APT? Which is more useful to the small investor and why?

What makes a capital market efficient? What is the value to the US investor of investing in a capital market that is not efficient?

The capital asset pricing model (CAPM) suggests the investors first consider the market portfolio and then decide a portfolio that would require borrowing and lending to archive a desired level of risk and return trade off. For an investor who is willing to take more risk, this would mean that they borrow at the risk free rate and invest in the market portfolio and repeat the process every period. Suppose you are a long-term investor (saving for retirement) who is willing to hold a portfolio twice as risky as the market portfolio. How would you implement the suggestion of CAPM? What are the limitations? Explain.

Establishing a capital structure for a firm is not simple. Although financial theory guides the process, there is no easy formula to determine a target debt-to-equity ratio. However, there are key factors which should be considered as they affect the target ratio.List and explain these factors.

What are the benefits and risks associated with motorcycle manufacturer, Harley-Davidson, issuing a bond that will increase its debt to assets ratio by 1% to finance an international expansion to Canada?

ALTERNATIVE DIVIDEND POLICIES

In 2015, the Keenan Company paid dividends totaling $2,390,000 on net income of $10 million. Note that 2015 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 4%. However, in 2016, earnings are expected to jump to $17 million and the firm expects to have profitable investment opportunities of $7.4 million. It is predicted that Keenan will not be able to maintain the 2016 level of earnings growth because the high 2016 earnings level is attributable to an exceptionally profitable new product line introduced that year. After 2016, the company will return to its previous 4% growth rate. Keenan's target capital structure is 40% debt and 60% equity.

1. Calculate Keenan's total dividends for 2016 assuming that it follows each of the following policies: (Write out your answers completely. For example, 25 million should be entered as 25,000,000.)
   1. Its 2016 dividend payment is set to force dividends to grow at the long-run growth rate in earnings. Round your answer to the nearest cent.
      $
   2. 
      
   3. It continues the 2015 dividend payout ratio. Round your answer to the nearest cent. Do not round intermediate calculations.
      $
   4. 
      
   5. It uses a pure residual dividend policy (40% of the $7.4 million investment is financed with debt and 60% with common equity). Round your answer to the nearest cent.
      $
   6. 
      
   7. It employs a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra dividend being set according to the residual dividend policy. Round your answer to the nearest cent.
2. 
   
3. Which of the preceding policies would you recommend?
   -Select-Policy 1Policy 2Policy 3Policy 4Item 6
4. 
   
5. Assume that investors expect Keenan to pay total dividends of $10,000,000 in 2016 and to have the dividend grow at 4% after 2016. The stock's total market value is $170 million. What is the company's cost of equity? Round your answer to two decimal places.
   %
6. 
   
7. What is Keenan's long-run average return on equity? [Hint: g = Retention rate x ROE = (1.0 - Payout rate)(ROE).] Do not round intermediate calculations. Round your answer to two decimal places.
   %
8. 
   
9. Does a 2016 dividend of $10,000,000 seem reasonable in view of your answers to parts c and d? If not, should the dividend be higher or lower?

Use the Black-Scholes formula for the following stock:

Calculate the value of a call option. (Do not round intermediate

Capital Budgeting Analysis

A firm is planning a new project that is projected to yield cash flows of -$515,000 in Year 1, $586,000 per year in Years 2 through 3, and $678,000 in Years 4 through 6, and $728,000 in Years 7 through 10. This investment will cost the company $2,780,000 today (initial outlay). We assume that the firm's cost of capital is 9.65%.

(1) Draw a timeline to show the cash flows of the project.

(2) Compute payback period, net present value (NPV), profitability index (PI), internal rate of return (IRR), and modified internal rate of return (MIRR).

(3) Discuss whether the project should be taken.