Based on the following:

• The estimated purchase price for the equipment required to move the operation in-house would be $500,000. Additional net working capital to support production (in the form of cash used in Inventory, AR net of AP) would be needed in the amount of $25,000 per year starting in year 0 and through all 5 years of the project to support production.

• The current spending on this component (i.e. annual spend pool) is $875,000. The estimated cash flow savings of bringing the process in-house is 20% or annual savings of $175,000. This includes the additional labor and overhead costs required.

• Your company has access to a credit line and could borrow the funds at a rate of 6%.

• Finally, the equipment required is anticipated to have a somewhat short useful life, as a new wave of technology is on the horizon. Therefore, it is anticipated that the equipment will be sold after five years for $25,000. (i.e. the terminal value).

Your colleague from Accounting, recommends using the base assumptions above: 5-year project life, flat annual savings, and 10% discount rate. She does not feel the equipment will have any terminal value due to advancements in technology.

Using the data presented above (and ignoring the extraneous information), for this profit and supply chain improvement project, calculate each of the following (where applicable): Show Calculations

o  Nominal Payback

o  Discounted Payback

o  Net Present Value

o  Internal Rate of Return

ANALYSIS each line1 to 5

RATIOSANALYSIS

For the following bond,

Par value: $1,000

Coupon rate: 8% paid annually

Time to maturity: 3 years

Interest rate: 3%

What is the convexity? Also, if the interest rate increases from 3% to 4%, what is the price change due to the convexity?

Select one:

a. Convexity: 9.7806; price change: $.7087

b. Convexity: 11.125; price change: $.6402

c. Convexity: 10.2961; price change: $.5876

d. Convexity:11.925; price change: $.8887

5.   XYZ plc has been offered the following quotes for options on the dollar given a   current market price of 60 pence:     Strike price of dollar in pence   Call premium   Put premium     1 year   1 year   62   6.9   3.0   64   5.9   3.8   66   4.8   4.5   67   4.5   5.1

a.   Calculate the net payout from a purchased call option at a strike price of   67 pence for the following possible maturity prices 55p, 60p,65p,70p,75p.                            

  b.   Calculate the net payout for a written put option at 66p for the following possible   maturity prices: 55p, 60p,65p,70p,75p.    
(6   marks)
   a.   Calculate the total cost of the dollar if the MNC were to implement part a and part   b of this question for the following maturity prices: 55p, 60p,65p,70p,75p .               b.   Outline the advantages and disadvantages of purchasing a call at 67p and   writing a put at 66p for a MNC importing from the US.   

Suppose you have 25 years until you retire, and that you desire a retirement nest-egg of $2,500,000 on the day you retire. Suppose also that you’ve saved $100,000 toward your retirement so far, and that your investment account earns a nominal rate of 7.5% per year, compounded monthly. In addition, suppose you expect a windfall inheritance of $200,000 five years from now that you will invest in this account.

a) What is the effective interest rate, or annual percentage yield, of your investment account?

b) How much money should you deposit into that account every year in order to reach your goal?

You expect the price of CEMENCO stock to be US$59.77 per share a year from now. Its current market price is US$50.00, and you expect it to pay dividend one year from now of US$2.15 per share.

1. What are the stock’s expected dividend yield, rate of price appreciation, and expected holding – period return?

2. If the stock has a Beta of 1.15, the risk – free rate is 6% per year, and the Expected Rate of Return on the market portfolio is 14% per year. What is the Required Rate of Return on CEMENCO stock?

3. What is the intrinsic value of CEMENCO stock?

Question 2

Using real options in a risk environment can be beneficial if the enterprise need to make decisions on switching or acquiring multiple suppliers. Ericsson and Nokia had different approaches in managing risk, which led to different outcomes during a business interruption event at a major supplier.

a. Explain the difference between risk and uncertainty.

b. Explain how real options how can be used to inform decisions to reduce the impact of exogenous shocks on the enterprise.

ANZflix, a media-services provider, charges subscribers $13.49 per month. To attract more customers, the Management and Product Planning team spents an estimated cost at $52,000 to produce and deploy products across all user interfaces. Also, the Software Engineering team maintains all systems and infrastructure to ensure that members can continue to sign up and watch ANZflix. This maintainance costs ANZflix $56,000 per month. ANZflix uses a server in Taiwan to deliver streaming videos to its subscribers and the facility runs at a cost of $135 per month. Another cost incurred by ANZflix includes $0.02 per GB (GigaByte) of bandwidth to deliver content. In addition, the external studios making the content are paid $0.15 every time for a subscriber watches one program. A typical ANZflix subscriber will watch 30 programs, streaming 65GB of film and TV shows per month. Each subscriber will also cost ANZflix $1.14 per month to maintain their membership. (a) Using the above information, calculate: (i) The break-even number of subscribers per month for ANZflix. (ii) The monthly revenue at break-even. Show all working out including the modelling and solution steps. (b) Provide an EXCEL graph detailing the necessary information to show the break-even points contained in your responses to parts (a) of this question. The graph must illustrate the B.E.P. and the region corresponding to profits and the region corresponding to losses. Your student ID must be included as a part of the title of the graph. (c) How many subscribers are required to obtain a profit of $120,000 per month? What is the monthly revenue for this number of subscribers? Show all working out including the modelling and solution steps. (d) The marketing department is forecasting that if the subscription price is reduced by 10%, Anzflix will attract 35% more subscribers than the current number when monthly profit is $100,000. However, as they don’t have a degree in analysing data they need you to make sure they aren’t making bad recommendations. Calculate the new break-even number of subscribers, the new revenue and thus the new profit for these changes. Show all working out including the modelling and solution steps. (e) What effect does the change in part (d) have on the contribution margin? Explain the effect of this change on the expected break-even number in part (a). Support your justification with calculation of both contribution margins.

A small firm makes three similar products, which all follow the same three-step process, consisting of milling,
inspection, and drilling. Product A requires 12 minutes of milling, 5 minutes for inspection, and 10 minutes of
drilling per unit; product B requires 10 minutes of milling, 4 minutes for inspection, and 8 minutes of drilling per
unit; and product C requires 8 minutes of milling, 4 minutes for inspection, and 16 minutes of drilling. The
department has 20 hours available during the next period for milling, 15 hours for inspection, and 24 hours for
drilling. Product A contributes $2.40 per unit to profit, product B contributes $2.50 per unit, and product C
contributes $3.00 per unit. Determine the optimal mix of products in terms of maximizing contribution to profits
for the period.
Requirements:
a) Define the decision variables;
b) Show the business objective and objective function;
c) List all constraint equations;
d) Create an EXCEL working sheet for the linear programming model;
e) Provide both Answer and Sentivity reports;
f) Find the range of optimality for the profit coefficient of each variable using the reoprts generated.

As you learned, mergers and acquisitions can be beneficial for companies (and sometimes, less than beneficial). After watching the videos in the folders above, think of two companies that could benefit from a merger or potential acquisition for a company. Why would this deal make sense? What would be some potential pitfalls?

Stock X has a beta of 0.88 and an expected return of 10.8 percent. Stock Y has a beta of 1.15 and an expected return of 13.1 percent. What is the risk-free rate of return assuming that both stock X and stock Y are correctly priced?

Multiple Choice:

3.30 percent

2.06 percent

1.20 percent

3.50 percent

1.10 percent

Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $3 million as a result of an asset expansion presently being undertaken. Fixed assets total $1 million, and the firm plans to maintain a 45% debt-to-assets ratio. Rentz's interest rate is currently 9% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 11% of total sales, and the federal-plus-state tax rate is 40%.

1. What is the expected return on equity under each current assets level? Round your answers to two decimal places.
   

   Restricted policy	?	%
   Moderate policy	?	%
   Relaxed policy	?	%

2. 
   
3. In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption?
   1. Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm.
   2. Yes, the current asset policies followed by the firm mainly influence the level of fixed assets.
   3. No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales.
   4. Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales.
   5. Yes, sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs.
   
   -Select Item
4. 
   
5. How would the firm's risk be affected by the different policies?
   
   The input in the box below will not be graded, but may be reviewed and considered by your instructor.
   ???

You wrote, "However, when the economists and market participants expect a recession, the yields curve invert as well, which means that the higher duration bond yields are lower than, the lower duration bond yields." I wonder if you could explain and elaborate on the topic more. Why an inverted yield curve signals a recession? Provide examples to illustrate your points.

How does loan securitization compare to other means of risk management? Do you think all types of assets held by FI should be securitized? Please explain.

Parramore Corp has $20 million of sales, $2 million of inventories, $4 million of receivables, and $3 million of payables. Its cost of goods sold is 75% of sales, and it finances working capital with bank loans at an 9% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
     days
2. 
   
3. If Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.
     days
4. 
   
5. How much cash would be freed up, if Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $
6. 
   
7. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $