Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.75%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.25%. Assume the rate of return on both funds’ portfolios (before any fees) is 7% per year.

a.	How much will an investment of $100 in each fund grow to after 1 year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded-Up Fund	$
Economy Fund	$

b.	How much will an investment of $100 in each fund grow to after 5 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded-Up Fund	$
Economy Fund	$

c.	How much will an investment of $100 in each fund grow to after 12 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded-Up Fund	$
Economy Fund	$

FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 35 percent debt. Currently, there are 6,900 shares outstanding and the price per share is $59. EBIT is expected to remain at $26,220 per year forever. The interest rate on new debt is 10 percent, and there are no taxes.

a. Melanie, a shareholder of the firm, owns 180 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Shareholder cash flow            $

b. What will Melanie’s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 180 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Shareholder cash flow            $

c. Suppose FCOJ does convert, but Melanie prefers the current all-equity capital structure. Show how she could unlever her shares of stock to recreate the original capital structure. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Number of shares stockholder should sell            

Mr. Nailor invests $20,000 in a money market account at his local bank. He receives annual interest of 6% for 5 years. How much return will his investment earn during this time period? Use Appendix A to calculate the answer.

Multiple Choice

• $14,940

• $6,760

• $24,444

• $26,760

NEW PROJECT ANALYSIS

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $250,000, and it would cost another $50,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $125,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require a $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $31,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%.

1. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign.
   $

2. What are the project's annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent.

   In Year 1 $

   In Year 2 $

   In Year 3 $

3. If the WACC is 12%, should the spectrometer be purchased?
   -Select-Yes / No

Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $48,000 that matures in one year. The current market value of the firm’s assets is $51,600. The standard deviation of the return on the firm’s assets is 38 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously.

a. Based on the Black–Scholes model, what is the market value of the firm’s equity and debt? Market value Equity $ 10923.19; Debt $ 40676.81

b. What is the firm’s continuously compounded cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.).
Cost of debt %

I already got part a (and it's correct), I jus need part b.

DEPRECIATION METHODS

Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $225,000 of equipment. She is unsure what depreciation method to use in her analysis, straight-line or the 3-year MACRS accelerated method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%. The company's WACC is 12%, and its tax rate is 30%.

1. What would the depreciation expense be each year under each method? Round your answers to the nearest cent.
   

   Year	Scenario 1 (Straight-Line)	Scenario 2 (MACRS)
   1	$	$
   2
   3
   4

2. Which depreciation method would produce the higher NPV?
   Straight-Line OR MACRS
3. 
   How much higher would the NPV be under the preferred method? Round your answer to two decimal places. Do not round your intermediate calculations. $

AHN is firm manufacturer. The firm is all-equity financed and has 40 million shares outstanding at a price of $75 per share. AHN current cost of capital is 7.5%. The firm is considering to buy back $400 million in shares in the open market and to finance the repurchase by issuing bonds. AHN plans to maintain this capital structure indefinitely. At this level of debt, the bonds would be A-rated, and the firm would pay an interest rate of 4.5%.AHN's - marginal corporate tax rate is 25%. With this information answer the following questions.

(iii) Now suppose that the stock price upon announcement of the share repurchase plan equals $77.90. If we assume that the market is efficient, and the firm has not released any other information, what can you infer from this regarding the market’s assessment of AHN’s cost of financial distress, and how would you estimate these costs? Motivate your approach and discuss the inputs in any calculations.

You are holding a 2-year 10% (annualized) coupon bond with face value $1,000 now. The interest rate now is 5% (semi-annual). However, the interest rate increases to 5.5% (semiannual) tomorrow. What is the Macaulay Duration now? What is the Modified Duration now? When the interest rate (semi-annual) increases to 5.5% tomorrow, what is the actual price change in this bond? And what is the bond price change using modified duration approximation? Which one is larger in absolute value?

******* Need answer not in excel form *********

QUESTION 1

Read the two cases of Barbican Bank and Intermarket of Zimbabwe and answer the questions below:

Barbican Bank (BB)

Barbican Bank was formed in the late 1990s at the height of a rush into the financial services sector by domestic investors. It was born out of an asset management company. The founder
was a flamboyant businessman who was a public figure in the financial services sector. At formation the bank declared its focus would be the elite market. Its products were therefore
targeted specifically at the top market. The bank also declared an intention to operate a very small branch network, no more than five branches. Barbican started experiencing liquidity
problems in early 2003 and was placed under the curator in March 2003. Before being placed under the curator Barbican had been reporting fabulous profits most of them having come
from non interest transactions. According to the Central Bank, Barbican ‘‘was experiencing serious liquidity problems as a result of imprudent banking behaviours. There was no clear separation between various related entities within the group which led to cross funding of operations and excessive risk taking among other shortcomings.’’ The Central Bank also noted
that the bank was involved in ‘‘questionable cross-border foreign exchange activities.’’ The bank had shifted funds to South Africa from local operations with the object of establishing a
new company in South Africa. During its operation the bank introduced the derivatives (junk bonds) market, which had been non-existent in the country’s financial sector. When liquidity
problems besieged Barbican the Central Bank placed the banking division under the curator and the asset management company under liquidation. At the time of taking these measures
the Central Bank had injected money into the bank as liquidity support but the bank appeared to be on a serious slide. The bank has since failed to repay on time the loan from the Central
bank’s Troubled Bank Fund. On seeing his financial companies in difficulties, the Chief Executive (the founder) skipped the country. Despite problems in the home operations, the
founding chief executive was trying to set up another financial services company in South Africa. During his tenure the Chief Executive is said to have been so dominant the board
appeared clueless and powerless to restrain him. The bank has now been placed into liquidation by the Central Bank. It will be amalgamated into a merger of liquidated banks to form a new bank.

Intermarket (IM)

The founder established Intermarket Holdings during the late 1990s through acquisitions. At the time of inset of financial distress, the founder owned 72 percent of Intermarket Holdings
through an investment company called Transnational Holdings. Transnational Holdings comprised companies in banking and insurance among others. Its influence in the financial
services sector was in every sphere. Intermarket Banking Corporation one of the subsidiaries of the holding company started showing signs of liquidity problems in early 2004. This was
during the period of a cash crisis in the country. Much as all banking institutions were affected by the cash crisis, Intermarket appeared completely outstretched by the crisis. In March 2004
the bank was placed under the management of a curator by the Central Bank when it appeared it could not pay its creditors and depositors on demand. On investigation, the Central Bank
discovered that the Executive Chairman had loaned himself Z$90 billion of depositors’ money and the insider loans were not being serviced. The Executive Chairman was said to have been so dominant he had the veto power on everything that took place in the corporation. Investigations by the appointed curator have led to a rise in the figure for insider loans to
Z$174 billion. The Executive chairman fled the country when authorities appeared to point at him as the main contributor to financial distress in the institution. Intermarket has been trying
to enter into partnership with other banking institutions, in order to shore up its capital, without much success. Instead Finhold, another Zimbabwean financial institution whose banking
subsidiary is owed Z$100 billion is positioning itself to take over major shareholding in Intermarket Bank through a combination of cash and debt swap. Finhold’s strategy is an
attempt to protect possible collapse of Intermarket since it is a major creditor. Intermarket has to raise its capital base to Z$10 billion before 30 September 2004 as per regulatory authority
requirements. Fraud by some IM employees taking advantage of weak management systems has exacerbated financial distress in Intermarket. The curator has however opened the banking division for limited services to depositors.

Questions:

a) The liquidity problems experience by Barbican Bank and Intermarket bank were as a result of poor risk management. Discuss?

b) Identify the speculative risk that was taken by Barbican Bank?

c) Lack of board independence inadvertently creates an epicentre for corporate governance failures. Discuss using the two cases and outline the ideal role of a board in corporate governance and risk management

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.3 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. The project is estimated to generate $1,720,000 in annual sales, with costs of $628,000. The project requires an initial investment in net working capital of $270,000, and the fixed asset will have a market value of $210,000 at the end of the project.

  

a.	If the tax rate is 22 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.)
b.	If the required return is 10 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.)

1. According to a report from WSJ, investors are gobbling up auto loans extended to the riskiest borrowers, looking past market warning signs as they reach further for returns. In 2018, investors have been buying subprime auto securitization deals that offer slices with single-B credit ratings, well into junk territory and the lowest grade offered when such bonds are sold. Auto lenders have issued $318 million worth of single-B debt in 2018, more than all prior years combined, according to data from Finsight. Subprime auto deals, often bought by large money managers and other institutional investors, are typically backed by loans to borrowers with FICO scores below the mid-600s. Because these borrowers are at higher risk of default, the bonds tied to their loans can offer higher yields. Typically such bonds are subdivided into various layers, each with a different level of risk and return based on the order in which they receive payments.

Should investors be concerned that the amount issued in 2018 exceeds the amount issued in all prior years combined? Should government regulators be concerned? Why or why not? Given that borrowers tended to pay car loans even as they defaulted on their mortgages, do the single-B ratings overstate the risk of investing in the bonds? Why or why not?

Blossom Corp. management is investigating two computer systems. The Alpha 8300 costs $3,006,625 and will generate cost savings of $1,548,725 in each of the next five years. The Beta 2100 system costs $4,627,500 and will produce cost savings of $1,177,750 in the first three years and then $2 million for the next two years. The company’s discount rate for similar projects is 14 percent.

What is the NPV of each system? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)

NPV of Alpha system _____

NPV of Beta system _____

Which one should be chosen based on the NPV? Blossom should chose the _______ system.

Wildhorse Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses a 7 percent discount rate for production systems.

Year System 1 System 2

0 -$15,080 -$47,448

1 15,294 33,300

2 15,294 33,300

3 15,294 33,300

Compute the IRR for both production system 1 and production system 2. (Do not round intermediate calculations. Round answers to 2 decimal places, e.g. 15.25%.)

IRR of system 1 is _________ % and IRR of system 2 is _________ %.

Which has the higher IRR? (System 1/ System 2)

Compute the NPV for both production system 1 and production system 2. (Do not round intermediate calculations. Round answers to 2 decimal places, e.g. 15.25.)

NPV of system 1 is $__________ and NPV of system 2 is $___________.

Which production system has the higher NPV? (System 1/ System 2)

Tom buys two July futures contracts on frozen orange juice. Each contract is for the delivery of 15,000 pounds. The current futures price is 160 cents per pound, the initial margin is $6,000 per contract, and the maintenance margin is $4,500 per contract. What price change would lead to a margin call? Under what circumstances $2,000 could be withdrawn from the margin account?

You plan to retire in year 20 Your retirement will last 25 years starting in year 21 You want to have $50,000 each year of your retirement. How much would you have to invest each year, starting in one year, for 15 years , to exactly pay for your retirement ,if your investments earn 6.00% APR (compounded annually)? a. 21.,349 b. 21, 546 c. 20,520 d. 20,930