The General Hospital is evaluating new office equipment offered by 2 companies. In each case the interest rate is 15% and the useful life of the equipment is 4 years. Use incremental analysis benefit cost ratio pW to determine the company from which you should purchase the equipment
Company A, Company B
First cost $ 15,000 $ 25,000
Annual M&R cost $ 1,600 $ 800
Annual benefit $ 8,000 $ 3,000
one-off cash flow $ 1,200. $ 900. (both saved in 2 years)
Salvage value. $ 3,000 $ 3,500
In: Finance
During the year just ended, Anna Schultz's portfolio, which has a beta of 0.98, earned a return of 8.7%.
The risk-free rate is currently 4.2%, and the return on the market portfolio during the year just ended was 9.4%.
A. Calculate Treynor's measure for Anna's portfolio for the year just ended.
b. Compare the performance of Anna's portfolio found in part a to that of Stacey Quant's portfolio, which has a Treynor's measure of 1.36%. Which portfolio performed better? Explain.
c. Calculate Treynor's measure for the market portfolio for the year just ended.
d. Use your findings in parts a and c to discuss the performance of Anna's portfolio relative to the market during the year just ended.
a.The Treynor's measure for Anna's portfolio is ___%. (Round to two decimal places.)
1.outperformed
2.underperformed Stacy's with a TM of ___
1. 4.59
2. 1.36
% versus one of 1.36%. (Select from the drop-down menus.)
c. The Treynor's measure for the market portfolio is ___%. (Round to two decimal places.)
d. The market_____
▼
1.outperformed
2. underperformed
Anna's portfolio; its TM was______
▼
1. 4.59
2. 1.36
3. 5.20
%, compared to
▼
1. 4.59
2. 1.36
3. 5.20
% for her portfolio. (Select from the drop-down menus.)
In: Finance
Norman Borlaug has a wheat farm which produces 20,000 units and typically can produce them for $0.58 each with fixed costs of $3,000. The current market price for wheat forces them to sell their units for $0.71 each. Because of the tough market conditions, one of their competitors is looking to exit the business and instead rent their land out for $4,500 a month. Borlaug believes with the additional land they could produce and sell an extra 80,000 units each with the same variable cost of $0.58 per unit. However by creating these additional units and adding supply to the market, the company would then sell all the wheat it produces from both farms for $0.68 per unit.
Notes: keep in mind that now the revenues and fixed expenses are changing based on whether we need the second farm, meaning that you will need an IF statement for both the revenues and fixed expenses of the contribution income statement, but not the variable expenses. In addition, when creating the revenues and expenses columns to make the CVP graph, both columns will take IF statements as, once again, the revenues and fixed expenses both change if we need two farms. If everything is set up correctly, the break-even should be 75,000 units. As always, feel free to email me with any questions and best of luck!
In: Finance
You decide to invest in a portfolio consisting of 33 percent Stock A, 44 percent Stock B, and the remainder in Stock C. Based on the following information, what is the variance of your portfolio? State of Economy Probability of State Return if State Occurs of Economy Stock A Stock B Stock C Recession .111 − 9.80% − 3.20% − 12.20% Normal .659 9.10% 10.60% 16.60% Boom .230 21.49% 24.99% 29.69% rev: 04_25_2019_QC_CS-167128 .00803 .01084 .00747 .00843 .00907
In: Finance
Option #2: Capital Budgeting Analysis
Suppose you are the financial manager of a firm considering the following five projects.
Project A | Project B | Project C | Project D | Project E | |
Initial Investment | -$10,000 | -$15,000 | -$14,000 | -$6,000 | -$1,500 |
Year 1 | $5,000 | $5,000 | $6,000 | $4,000 | $1,000 |
Year 2 | $4,000 | $5,000 | $4,000 | $2,000 | $250 |
Year 3 | $2,000 | $5,000 | $3,500 | $2,000 | $100 |
Year 4 | $1,000 | $5,000 | $2,500 | $2,000 | $100 |
Year 5 | $5,000 | $2,000 | $100 | ||
Year 6 | $2,000 | $100 |
In: Finance
Wan purchased a 7-year Treasury bond with a coupon rate of j2 = 4.5% p.a. and a face value of $100 that matures at par and is subject to a 30% tax on interest and capital gain. The purchase price was $94.230.
a. Use the approximate bond yield formula to estimate the net yield rate. Give your answer in j2 form, rounded to 3 decimal places.
b. Use linear interpolation to calculate the net yield rate. Give your answer in j2 form, rounded to 3 decimal places. Hint: 1.9% per half year and 2% per half year are the lower bound and the upper bound for the net yield rate.
c. Recalculate the bond price if the net yield rate is j2 = 4.3% p.a. and all tax payments (interest tax payments and capital gain tax payment) are delayed by half year. Round the result to 3 decimal places.
d. Wan decides to hold this bond to maturity. Over the seven years the before-tax reinvestment rates he earned are shown in table 1. Calculate Wan's total realised compound yield rate if he has received a tax exemption and so does not need pay the taxes for this bond. Assume that Wan purchased this bond at a yield rate of j2 = 4.3% p.a. and the purchase price was $101.20. Give your answer in j2 form, rounded to 2 decimal places.
Annual reinvestment rates as below:
Year 1 - Year 2 | j2 = 4.3% p.a. |
Year 3 - Year 7 | j2 = 4.7% p.a. |
In: Finance
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly.
Assume that a $1,000,000 par value, semiannual coupon US Treasury note with four years to maturity has a coupon rate of 4%. The yield to maturity (YTM) of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note:
a) $1,049,602.92
b) $874,669.10
c) $551,041.53
d) $743,468.74
Based on your calculations and understanding of semiannual coupon bonds, complete the following statement:
When valuing a semiannual coupon bond, the time period variable(N) used to calculate the price of a bond reflects the number of periods remaining in the bond’s life.
In: Finance
Your company is considering the purchase of a fleet of cars for $195,000. It can borrow at 8.5%. The cars will be used for four years. At the end of four years they will be worthless. You call a leasing agent and find that the cars can be leased for $55,000 per year. The corporate tax rate is 34% and the cars belong in CCA class 10 (a 30% class), what is the net advantage to leasing?
A) $6,594 B) $9,988 C) $10,134 D) $15,363 E) $21,802
In: Finance
Investment and Speculation
In: Finance
Suppose you purchase a ten-year bond with 9 % annual coupons.You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 8.05 % when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $ 100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding.
In: Finance
1A. Which of the following is not a type of financial cash flows?
1B. What type of risk matters to an investor with a well-diversified portfolio? How is this type of risk measured?
In: Finance
Part I Simple Annuities
Financial Mathematics
FORMULA SHEET
i = j / m
I = Prt
t = I / Pr
P = I / rt
S = P(1 + i)n
f = (1 + i)m - 1
n = ln (S / P)
ln (1 + i)
Sn = R[(1 + p)n - 1]
p
R = Sn
[(1 + p)n - 1] / p
Sn(due) = R[(1 + p)n - 1](1 + p)
p
n = ln [1 + [pSn(due) / R(1 + p)] ln(1 + p)
An(def) = R [1 - (1 + p)-n] p(1 + p)d
A = R / p
m = j / i
S = P(1 + rt)
r = I / Pt
P = S / (1 + rt) = S(1 + i)-n
c = # of compoundings/# of payments
p = (1 + i)c - 1
i = [S / P] 1/n - 1
An = R[1 - (1 + p)-n]
p
R = An
[1 - (1 + p)-n] / p
An(due) = R[1 - (1 + p)-n](1 + p)
p
n = -ln[1 - [pAn(due) / R(1 + p)] ln(1 + p)
d = -ln{R[1-(1 + p)-n] / pAn(def)} ln(1 + p)
Sn(def) = Sn
A(due) = (R / p)(1 + p)
In: Finance
Congratulations! Your portfolio returned 9.1% last year, 2.3% better than the market return of 6.8%. Your portfolio had a standard deviation of earnings equal to 21%, and the risk-free rate is equal to 4.1%. Calculate Sharpe's measure for your portfolio. If the market's Sharpe's measure is 0.38, did you do better or worse than the market from a risk/return perspective?
The Sharpe's measure of your portfolio is ____ (Round to two decimal places.)
Your portfolio's performance is ___
equal
inferior
superior
to the market's performance. (Select from the drop-down menu.)
In: Finance
Assignment
You are a consultant, external to this firm. Create two years (2020 and 2021) of pro forma income statements and balance sheets and the statement of cash flows, including operating, investing and financing sections for 2020 only.
Techno Corporation
Techno Corp
Income Statement
Actual results 2019 for 12 months ending December 31, 2019
Sales revenue (10,000 units at $250 each) | $2,500,000 |
Cost of goods sold ($100 per unit) | ($1,000,000) |
Gross profit | $1,500,000 |
Operating expenses | ($500,000) |
Operating profit | $1,000,000 |
Interest expense | ($200,000) |
Net profits before taxes | $800,000 |
Taxes (30%) | ($240,000) |
Net profits after tax | $560,000 |
Dividends on common stock | $224,000 |
Techno Corp
Balance Sheet
December 31, 2019
ASSETS | $500,000 |
Marketable securities | $300,000 |
Accounts receivable | $500.000 |
Inventory | $400,000 |
Total current assets | $1,700,000 |
Net fixed assets | $2,000,000 |
Total assets | $3,700,000 |
LIABILITIES AND STOCKHOLDER’S EQUITY | |
Accounts payable | $150,000 |
Taxes payable | $120,000 |
Notes payable (long-term debt due within one year) | $200,000 |
Other current liabilities | $200,000 |
Total current liabilities | $670,000 |
Long-term debt | $1,800,000 |
Total liabilities | $2,470,000 |
Common stock | $500,000 |
Retained earnings | $730,000 |
Total liabilities and stockholder’s equity | $3,700,000 |
Techno Corporation Paper
Techno Corporation is developing its pro forma financial statement forecasts for 2020 and 2021. Its actual results for 2019 are shown in the income statement and balance sheet.
Background
In: Finance
In: Finance