In December 2019, Bob Prescott, the controller for the Blue Ridge Mill, was considering the addition of new on-site long-wood woodyard. The addition would have two primary benefits: to eliminate the need to purchase short-wood from an outside supplier and create the opportunity to sell short-wood on the open market as a new market for Worldwide Paper Company (WPC). The new woodyard would allow the Blue Ridge Mill not only to reduce its operating costs but also to increase its revenues. The proposed woodyard will utilise new technology that allows tree-length logs, called long-wood, to be processed directly, whereas the current process required short-wood, which had to be purchased from the Shenandoah Mill. This nearby mill, owned by a competitor, has excess capacity that allows it to produce more short-wood than it needs for its own pulp production. The excess is sold to several different mills, including the Blue Ridge Mill. Thus, adding the new long-wood equipment would mean that Prescott would no longer need to use the Shenandoah Mill as a short-wood supplier and that the Blue Ridge Mill would instead compete with the Shenandoah Mill by selling on the short-wood market. The question for Prescott was whether these expected benefits were enough to justify the $18m capital outlay plus the incremental investment in working capital over the six-year life of the investment. Construction would start within a few months, and the investment outlay would be spent over two calendar years: $16m in 2020 and the remaining $2m in 2021. When the woodyard begins operating in 2021, it would significantly reduce the operating costs of the mill. These operating savings would come mostly from the difference in the cost of producing short-wood on-site versus buying it on the open market and were estimated to be $2m for 2021 and $3.5m per year thereafter. Prescott also planned on taking advantage of the excess production capacity afforded by the new facility by selling short-wood on the open market as soon as possible. For 2021, he expected to show revenues of approximately $14m, as the facility came on-line and began to break into the new market. He expected shortwood sales to reach $20m in 2022 and continue at the $20m level through 2026. Prescott estimated that the cost of goods sold (before including depreciation expense) would be 75%. In addition to the capital outlay of $18m, the increased revenues would necessitate higher levels of inventories and accounts receivable. Therefore the amount of working capital investment each year would equal 15% of incremental sales for the year. At the end of the life of the equipment, in 2026, all the networking capital on the books would be recoverable at cost fully. Taxes would be paid at a 30% rate, and the equipment depreciation is to be calculated on a straight-line basis over the six-year life to zero balance. However, the new equipment is estimated to have a salvage value (scrap value) of $3m at the end of its life. WPC’s accountants have told Prescott that depreciation charges could not begin until 2021, when all the $18m had been spent and the equipment is in service. WPC has a company policy to use 15% as the hurdle rate for such investment opportunities. The hurdle rate is based on the study of the company’s cost of capital conducted 5 years ago. Required:

a. Outline reasons why Prescott may be uneasy using the 15% hurdle rate for a discount rate.

b. Perform a sensitivity analysis on NPV of the project on the following scenarios :

(i) Sales increases/decreases by 10%.

(ii) Cost of capital increases/decreases by 10% . Comment on the feasibility of the project under each scenario. c. The global paper and pulp industry, one of the world largest industries, has been grow ing slowly, at a rate much less than expected over the last 20 years. The price chart below show s that the Products Industry Index on average grew at around 2.5% per year over the last 20 years , while lumber futures contract prices have negative growth. Some analysts believe that the industry needs more structural change to counter disruption of technology and tackle social impacts due to climate change. Identify and analyze three qualitative risk factors (ie . factors which are unquantifiable at present) faced by the industry. How would Bob Prescott consider these factors in evaluating the feasibility of the new on - site long - wood woodyard ?

Question 1 Suppose a forex trader makes the following statement, “liquid currencies would be more volatile than the illiquid ones.” Explain why would you agree or disagree with the trader’s statement.

Question 2 A forex trader has $1,000,000 (or its Swiss franc equivalent) to use in a forex speculation. The spot exchange rate is USD1.0524/CHF and the relevant 3-month interest rates (un-annualized) in the US and Switzerland are 3.8% and 5.3%, respectively. Suppose the trader can make a precise forecast and the future spot rate in 90 days will be USD1.0627/CHF, explain how the trader can perform arbitrage. How much arbitrage profit can the trader obtain? Explain your working

Suppose you receive the following quotes from a dealer. The bid and ask prices for USD are MYR4.15 and MYR4.18, respectively. The same dealer also quotes the bid and ask prices for GBP to be at MYR5.10 and MYR5.15. Given the following quotes, calculate the USD cost of obtaining GBP10,000.

A. $8,058

B. $8,196

C. $12,200

D. $12,410

Suppose you get the following exchange rate quotes: MYR4.4365/USD, MYR3.34/AUD, and USD0.74/AUD. Determine the triangular arbitrage profit that is possible if you have MYR1,000,000 to perform arbitrage.

A. MYR17,063

B. MYR17,210

C. MYR17,359

D. MYR17,590

My pension plan will pay me$5,000 once a year for a 10 -year period. The first payment will come in exactly five years. The pension fund wants to immunize its position.

a. What is the duration of its obligation to me? The current interest rate is 8% per year.

b.If the plan uses 3-year and 30-year zero-coupon bonds to construct the immunized position, how money ought to be placed in each bond?

c.What will be the face value of the holdings in each zero?

8. Tim wants to buy an apartment that costs $2,225,000 with an 85% LTV mortgage. Tim got a 30 year, 3/1 ARM with an initial teaser rate of 3.75%. The reset margin on the loan is 300 basis points above 1 year CMT. There are no caps. The index was 1% at the time of origination. Tim also had to pay 6.5 points for this loan.

Compute the true APR (annualized IRR) for this loan.

Risk, Return, and the Capital Asset Pricing ModelAs a first day intern at Tri-Star Management Incorporated the CEO asks you to analyze the following in-formation pertaining to two common stock investments, Tech.com Incorporated and Sam’s Grocery Cor-poration. You are told that a one-year Treasury Bill will have a rate of return of 5% over the next year. Also, information from an investment advising service lists the current beta for Tech.com as 1.68 and for Sam’s Grocery as 0.52. You are provided a series of questions to guide your analysis.

Estimated Rate of Return

Economy             Probability          Tech.com            Sam’s Grocery                   S&P 500

Recession            30%                        –20%                                     5%                          – 4%

Average               20%                        15%                                        6%                          11%

Expansion            35%                        30%                                        8%                          17%       

Boom                    15%                        50%                                        10%                        27%

1. Which of these two-stock portfolios do you prefer? Why

What future amount of money will be accumulated 10 years from now by investing $1500 now plus $5500 4 years from now at 6% interest compounded semi-annually?

Ford Motor Company submits an 8-K document to the SEC which includes Ford’s outlook for certain metrics. In the data given, we see the document for the 3rd quarter 2019 date October 23. We were given Ford’s outlook for the year ended December 31, 2019. The document that follows, dated February 23 was the actual metrics for the year ended December 31, 2019. Using this information, answer the following questions. 1. At October 23, 2019, Ford forecasted (budgeted) that its adjusted free cash flow for the year would grow over the prior year. Looking at the results dated February 23, did Ford meet that forecast? Is this a favorable or unfavorable variance? 2. At October 23, 2019, Ford forecasted (budgeted) that its adjusted EBIT (earnings before income tax) would be between $6.5 - $7.0 billion. Looking at the results dated February 23, did Ford meet that forecast? Is this a favorable or unfavorable variance? 3. At October 23, 2019, Ford forecasted (budgeted) that its adjusted EPS (earnings per share) would be $1.20 - $1.32 per share. Looking at the results dated February 23, did Ford meet that forecast? Is this a favorable or unfavorable variance? 4. What is Ford’s President, Jim Hacket’s reason regarding the budget variances?

The following information is available for the preparation of the government-wide financial statements for the City of Northern Pines for the year ended June 30, 2017:

one of the financial institutions that was discussed were the mutual funds.outline why you would choose to invest in a mutual fund and which asset class you would select. As a fund manager and investor, provide possible ways that you can make abnormal profits.

outline the role of financial intermediaries and their functions in financial markets. what benefits of the financial system do financial intermediaries provide?

Mini case from the book - Introduction to Corporate Finance 3rd Ed. pg 179 - Valuing stocks

Case - your investment adviser has sent you three analyst reports for a young, growing company named Vegas Chips Inc.. These reports depict the company as spectulative, but each one poses different projections of the company's future growth rate in earning and dividends. all three reports show that vegas chips earned $1.20 per share in the year just ended. There is consensus that a fair rate of return to investors for this common stock is 14% and that management expects to consistently earn a 15% return on the book value of equity (ROE = 15%).

1. Discuss the features(s) that drive the differing valuations of vegas chips. what additional information do you need to garner confidence in the projections of each analyst report?

Agency program and policy evaluations are subject to a variety of conflicts of interest, depending on "who" performs the evaluation. Discuss the ethical implications of an agency hiring its own outside contractor to evaluate its programs and policies in 200 words.

A business improvement district is considering the installation of a new light- ing system for the district. If the lighting system is installed, all the businesses in the area will benefit, and there will be no way in which a business that does not pay for a share of the system can be denied full benefits from the system. The system will cost $4,000 and will benefit the five members of the district as follows: Individual Benefit (in $) A 1,500 B 1,500 C 700 D 600 E 600 Cost Share (in $) 800 800 800 800 800 a. Is the project economically feasible? b. Would any individual business be willing to install the lighting system (and pay for it) by itself? c. Would the project be approved by a majority of the businesses at a referendum? d. Does the project as currently structured meet the Pareto criterion? e. If possible, revise the cost shares to allow the project to meet the Pareto crite- rion and to pass a referendum.