Pagemaster Enterprises is considering a change from its current capital structure. The company currently has an all-equity capital structure and is considering a capital structure with 25% debt. There are currently 4,500 shares outstanding at a price per share of $60. EBIT is expected to remain constant at $33,000. The interest rate on the new debt is 7% and there are no taxes.

a) Rebecca owns $18,000 worth of stock in the company. If the firm has a 100% payout, what is her cash flow?

b) What would her cash flow be under the new capital structure assuming that she keeps all of her shares?

c) Suppose the company does convert to the new capital structure. Show how Rebecca can maintain her current cash flow.

Collette, Inc., is considering issuing an Canadian dollar denominated bond at its present coupon rate of 10 percent, even though it has no incoming cash flows to cover the bond payments. U. S. dollar-denominated bonds issued in the United States would have a coupon rate of 9 percent. Either type of bond would have a 4-year maturity and could be issued at par value. Collette needs to borrow $10 million. Therefore, it will either issue U. S. dollar denominated bonds with a par value of $10 million or bonds denominated in Canadian dollars with a par value of C$13 million. The spot rate of the Canadian dollar is $.77. Collette has forecasted the Canadian dollar’s value at the end of each of the next four years, when coupon payments are to be paid at: Year 1 $0.76, Year 2 $0.75, Year 3 $0.74, and Year 4 $0.73.

(1) Calculate the expected annual cost of financing, as a percentage, with Canadian dollars.

(2) Should Collette, Inc., issue bonds denominated in U.S. dollars or Canadian dollars? Explain.

Use the Black-Scholes model to find the value for a European put option that has an exercise price of $77.00 and 0.2500 years to expiration. The underlying stock is selling for $87.00 currently and pays an annual dividend yield of 0.03. The standard deviation of the stock’s returns is 0.3900 and risk-free interest rate is 0.09. (Round your final answer to 2 decimal places. Do not round intermediate calculations.)

Put value            $

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please make sure the answer is correct

Consider the following situation:

The expected return on the market portfolio is 7% and the US Treasury bill yields 3%. The capital market is currently in equilibrium.

1. (5 points) Which stock has the most systematic risk? Provide all the steps and equations.

2. (5 points) Which stock has the most unsystematic risk? Explain why. Provide all the steps and equations.

3. (10 points) What is the standard deviation of a portfolio which is comprised of $8,400 invested in stock A, $3,600 in stock B, and $8,000 in stock C?

4. (5 points) If the expected inflation rate is 2.5%, what is the exact expected real return on the portfolio of part (c)?

Bauer industries is an automobile manufacturer. management is currently evaluating a proposal ... Question: Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to ... Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12.4% to evaluate this project. Based on extensive​ research, it has prepared the incremental free cash flow projections shown below​ (in millions of​ dollars):

a. For this​ base-case scenario, what is the NPV of the plant to manufacture lightweight​trucks? b. Based on input from the marketing​ department, Bauer is uncertain about its revenue forecast. In​ particular, management would like to examine the sensitivity of the NPV to the revenue assumptions. What is the NPV of this project if revenues are 8% higher than​ forecast? What is the NPV if revenues are 8% lower than​ forecast? c. Rather than assuming that cash flows for this project are​ constant, management would like to explore the sensitivity of its analysis to possible growth in revenues and operating expenses.​ Specifically, management would like to assume that​ revenues, manufacturing​expenses, and marketing expenses are as given in the table for year 1 and grow by 3% per year every year starting in year 2. Management also plans to assume that the initial capital expenditures​ (and therefore​ depreciation), additions to working​ capital, and continuation value remain as initially specified in the table. What is the NPV of this project under these alternative​ assumptions? How does the NPV change if the revenues and operating expenses grow by 6%per year rather than by 3%​? d. To examine the sensitivity of this project to the discount​ rate, management would like to compute the NPV for different discount rates. Create a​ graph, with the discount rate on the x​-axis and the NPV on the y​-axis, for discount rates ranging from 5% to 30%. For what ranges of discount rates does the project have a positive​ NPV?

What are flotation costs and why they must be included in the initial cost of a project? Explain in detail.

The differences between the standard deviation and beta in the measurement of risk in the capital market.

In preparing for the upcoming holiday season, Fresh Toy Company (FTC) designed a new doll called The Dougie that teaches children how to dance. The fixed cost to produce the doll is $120,000. The variable cost, which includes material, labor, and shipping costs, is $30 per doll. During the holiday selling season, FTC will sell the dolls for $45 each. If FTC overproduces the dolls, the excess dolls will be sold in January through a distributor who has agreed to pay FTC $8 per doll. Demand for new toys during the holiday selling season is extremely uncertain. Forecasts are for expected sales of 40,000 dolls with a standard deviation of 10,000. The normal probability distribution is assumed to be a good description of the demand. FTC has tentatively decided to produce 40,000 units (the same as average demand), but it wants to conduct an analysis regarding this production quantity before finalizing the decision.

1. Create a what-if spreadsheet model using a formula that relate the values of production quantity, demand, sales, revenue from sales, amount of surplus, revenue from sales of surplus, total cost, and net profit. What is the profit corresponding to average demand (40,000 units)?
   
   $  
2. Modeling demand as a normal random variable with a mean of 40,000 and a standard deviation of 10,000, simulate the sales of the Dougie doll using a production quantity of 40,000 units. What is the estimate of the average profit associated with the production quantity of 40,000 dolls? Round your answer to the nearest dollar.
   
   $  
3. Before making a final decision on the production quantity, management wants an analysis of a more aggressive 50,000-unit production quantity and a more conservative 30,000-unit production quantity. Run your simulation with these two production quantities. What is the mean profit associated with each? Round your answers to the nearest dollar.
   
   30,000-unit production quantity: $  
   
   50,000-unit production quantity: $  
4. Compare the three production quantities (30,000, 40,000, and 50,000) using all these factors. What trade-offs occur? Round your answers to 3 decimal places.
   
   30,000 units:
   
   40,000 units:
   
   50,000 units:

define and describe the most significant risks of bond investing

• Explain and calculate the costs of different capital components—debt, preferred stock, retained earnings, and common stock.

Angel Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,225.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC? Do not round your intermediate calculations. 8.48% 10.01% 7.80% 6.79% 7.63%

Dax Systems is considering a project that has the following cash flows for Project X and Y. What is the PI of X, using the new method? Cost of Capital = 10% Year Project X Project Y 0 -$1,000 -$2,000 1 $500 $1,400 2 $500 $800 3 $500 $400 0.243 0.201 0.545 0.920 0.117

A company will invest with an initial investment of $1,000,000. Assuming a market interest rate of 5% and cash flow for 5 years is expected in the table below:

Calculate the PAYBACK PERIOD and NPV!

Bond

relationship​)

​Mason, Inc. has two bond issues​ outstanding, called Series A and Series​ B, both paying the same annual interest of

​$110110.

Series A has a maturity of

1212

​years, whereas Series B has a maturity of

11

year.

a. What would be the value of each of these bonds when the going interest rate is​ (1)

44

​percent, (2)

99

​percent, and​ (3)

1313

​percent? Assume that there is only one more interest payment to be made on the Series B bonds.

b. Why does the​ longer-term

​(1212​-year)

bond fluctuate more when interest rates change than does the​ shorter-term

​(11​-year)

​bond?

XYZ Company has two good businesses. Each has an initial investment of $ 25,000 with each cash flow as follows:

If the cost of capital is 12.5%, calculate:

A. Payback Period and NPV

B. In your opinion, which business is better chosen? Business 1 and Business 2? And Why?