In essay format, discuss the role of employee-owned businesses and shareholder wealth maximization. What are some pros and cons?

Financial market commentators often argue that it is unwise to invest in commodities, as they historically have lower average returns and higher risk compared to equities. In light of this evidence discuss whether there is any justification for an investor with mean-variance utility preferences to invest in commodities as opposed to equities?

Your firm is considering two​ one-year loan options for a $ 489 comma 000 loan. The first carries fees of 2 % of the loan amount and charges interest of 3.7 % of the loan amount. The other carries fees of 1.8 % of the loan amount and charges interest of 4.5 % of the loan amount.

a. What is the net amount of funds from each​ loan?

b. Based on the net amount of​ funds, what is the true interest rate of each​ loan?

Suppose an investor would like to buy 200 Treasury notes. The investor wants notes with an annual coupon rate of 7%, a 3-year maturity, and semi-annual coupon payments.

a. (5 pts) If there were no such Treasury note available, propose a portfolio for this investor (using only Zeroes with maturities up to 3 years) that replicates the cash flows from investing in the Treasury notes above.

b. (5 pts) Assuming the yield curve is flat at 4.0% for bonds with maturities of up to 3 years, calculate the prices of the Zeroes in your portfolio from part (a). Using these prices, compute the no-arbitrage price of a Treasury note.

c. (5 pts) Now suppose there is a 3-year, 7% coupon rate Treasury note available that has a YTM of 4.5%. Would the investor above prefer to buy 200 Treasury notes or the portfolio of Zeroes identified in part (a)?

d. (5 pts) Find a costless and riskless trading strategy that makes an instantaneous profit by buying or selling the Treasury note and the portfolio of zeroes.

e. (5 pts) If this costless strategy required that you put up 50% collateral for the short sales, would you be willing to use all of your available capital for collateral in this strategy?

Broussard Skateboard's sales are expected to increase by 25% from $7.8 million in 2016 to $9.75 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 4%. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Do not round intermediate calculations. Round your answer to the nearest dollar.

Garlington Technologies Inc.'s 2016 financial statements are shown below:

Balance Sheet as of December 31, 2016

Income Statement for December 31, 2016

Suppose that in 2017 sales increase by 15% over 2016 sales and that 2017 dividends will increase to $192,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.

1. Mr. Toriop owns 5,000 shares of stock in Yummy Corporation. The company has announced that it will pay a dividend of $5 per share in one year and a liquidating dividend of $50 per share in two years. The required return on Yummy stock is 12%.                                                                                                             (21 marks total)

a. What is the current share price of your stock?                                 (1 mark)

b. What will be the company’s share price in one year’s time?                     (1 mark)

c.   Mr. Toriop wishes to have equal amounts of dividend income for the next two years. How can he use homemade dividends to achieve this goal? Check that the present value of the cash flows will be the same as it is before the homemade dividends. (Hint: Dividends will be in the form of an annuity.)                      

d. Suppose Mr. Toriop is thinking about buying a house for $220,000 in one year. How can he use homemade dividends to achieve this goal? Check that the present value of the cash flows will be the same as it is before the homemade dividends.                                                                                                

e. Suppose Mr. Toriop is thinking about postponing the house purchase for two years, by which time the price of the house will have increased by $46,800. How can he use homemade dividends to achieve this goal? Check that the present value of the cash flows will be the same as it is before the homemade dividends.                                                                                                                                

Personal Finance

For a $27,000 student loan with a 6% APR, how much of the payment will go toward the principal and how much will go toward paying interest for each of the first six payments? Assume this is a 10-year loan with monthly payments. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Payment Number Interest Paid Principal Paid

At this point, the demand in Mexico is picking up nicely. Your company is currently repatriating 47 million pesos per year from Mexico through the ESL class offering and English learning material sales. In addition your company is also importing Spanish learning material packages produced in Mexico and the company needs to pay about 7 million pesos a year from an independent subcontractor located in Mexico. Given recent exchange rate volatility increase, you are asked to identify a good alternative to hedge your company’s transaction exposure.

Based on the following information, please calculate the amounts you would have received based on the following information. You have alternatives of using forward hedge, money market hedge, futures and options. Based on your analysis and calculation, which hedging alternative will you recommend?

2. Which of the following is true in relation to a fixed rate lender that wishes to transform its position using an interest rate swap?
a. they should enter into a long interest rate swap
b. following the transformation, should the floating rate increase the lender receives more
c. following the transformation, the fixed rate reception is offset by the pay-fixed leg of the interest rate swap
d. all of the above

Broussard Skateboard's sales are expected to increase by 20% from $8.6 million in 2016 to $10.32 million in 2017. Its assets totaled $3 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 4%, and the forecasted payout ratio is 65%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.

1. We find the following information on NPNG (No-Pain-No-Gain) Inc. (18 marks total)

• EBIT = $2,000,000
• Depreciation = $250,000
• Change in net working capital = $100,000
• Net capital spending = $300,000

These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future:

• EBIT: 10%
• Depreciation: 15%
• Change in net working capital: 20%
• Net capital spending: 15%

The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $6,000,000 in debt. We have estimated the WACC to be 15%.

a.   Calculate the EBIT, Depreciation, Changes in NWC, and Net Capital Spending for the next four years.                                                                           

b.   Calculate the CFA* for each of the next four years, using the following formula:

CFA* = EBIT(1 – T) + Depr – ΔNWC – NCS                                                  

d.   Calculate the present value of growing perpetuity at Year 3.                   (1 mark)

e.   Calculate the firm’s value at time 0 using the WACC of the firm as the discount rate. (Note that the first CFA* to be discounted is the cash flow from one year into the future.)                                                                                           

f.   Calculate the firm’s equity value at time 0.                                                    (1 mark)

g.   Calculate the firm’s share price at time 0.                                           (1 mark)

What are the three major objectives of technological investments at FIs? What are the major risks involved with these investments?

Musical Instruments Business

A group of musicians have established a company selling medieval period musical instruments by mail order and appointed themselves company directors. The musicians have raised £750,000 of the capital required themselves and borrowed a further £500,000 in the form of a long-term bank loan. In order to establish the business, they have undertaken the following transactions.

• Bought premises for £850,000 (paid by cheque).
• Bought furniture and fittings for £100,000 (paid by cheque).
• Bought (on credit) stock of instruments for resale for £300,000.
• Bought a motor van for £20,000 (paid by cheque).

The remaining £280,000 of the total initial funds provided is deposited in the business’s bank account.

During the first year of trading, the following transactions occurred:

• instruments costing £1,400,000 were sold on credit terms for £2,000,000
• more instruments were purchased on credit terms for £1,500,000
• wages and other expenses of £300,000 were paid in cash
• cash totalling £1,250,000 was received from debtors
• cash totalling £1,400,000 was paid to creditors
• interest (paid cash) on the long-term loan was 10%.

At the end of the year, the directors decided to make a provision for bad debts of 5% of the year end debtors’ figure.

Closing stock (valued at cost) was £400,000.

An allowance for depreciation is to be made as follows:

• buildings, 2% of cost = £17,000
• furniture and fittings, 10% of cost = £10,000
• motor van, 20% of cost = £4,000.

Task

Construct a cash flow statement and use the information provided by it. The purpose is to highlight the factors that determine an organisation’s liquidity.

Refer to figures above for the Musical Instruments Business. You will need this information to prepare a cash flow statement for the business.

During the first year of trading, the directors of Musical Instruments Business have frequently experienced serious cash shortages – even though the enterprise has made a profit.

Advise them how to improve the business’s liquidity. To do this. use Table 2 to record your output. You will need, firstly, to prepare a cash flow statement for the business, for the first year of trading, and use the information this provides to make your recommendations.

Not all of the different categories of cash flow given in the text example – Terrestrial Trading Company – will appear in the first year of trading for Musical Instruments Business. The template below (Table 1) provides you with the structure and content of the cash flow statement: all you have to do is fill in the numbers.

Table 1 Cash flow statement for Musical Instruments Business first year of trading

Table 2 Advice on improving liquidity for Musical Instruments Business

This should illustrate that profit does not equal cash (the profitability of an organisation does not automatically result in its liquidity). The cash flow statement you have prepared should indicate the main source of this organisation’s lack of liquidity. Such information should enable management to take appropriate remedial action, as well as enable other stakeholders (such as the providers of funds) to form an opinion about the financial management of the organisation. You may have noticed, in preparing the cash flow statement, that the net cash outflow for the year exceeded the business’s cash/bank balances at the beginning of the year; how do you think it financed this deficit?

Can Bankruptcy be considered as a  legitimate and ethical management vehicle to be used for the benefit of the company's stakeholders?