Discuss how company shareholders can encourage their managers to act in a way which is consistent with the objective of shareholder wealth maximisation.

Consider a call and put on the same underlying asset. The call has an exercise price of $100 and costs $20. The put has an exercise price of $90 and costs $12. 3.1 Graph a short position in a strangle based on these two options. [3] 3.2 What is the worst outcome from selling the strangle? [1] 3.3 At what price of the asset does the strangle have a zero profit?

Suspect Corp. issued a bond with a maturity of 10 years and a semiannual coupon rate of 8 percent 3 years ago. The bond currently sells for 96 percent of its face value. The book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years left to maturity; the book value of this issue is $30 million and the bonds sell for 55 percent of par. The company’s tax rate is 35 percent.

(a) What is the company’s total book value of debt? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

(b) What is the company’s total market value of debt? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

(c) What is your best estimate of the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cash budget​) The Sharpe​ Corporation's projected sales for the first 8 months of 2016 are shown in the following​ table:

Of​ Sharpe's sales, 30 percent is for​ cash, another 50 percent is collected in the month following the​ sales, and 20 percent is collected in the second month following sales. November and December sales for 2015 were $220,000 and $175,000 respectively. Sharpe purchases its raw materials 2 months in advance of its sales. The purchases are equal to 55 percent of the final sales price of​ Sharpe's products. The supplier is paid 1 month after it makes a delivery. For​ example, purchases for April sales are made in​ February, and payment is made in March. In​ addition, Sharpe pays $ 9,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $21,000 are made each​quarter, beginning in March. The​ company's cash balance on December​ 31, 2015, was $22,000. This is the minimum balance the firm wants to maintain. Any borrowing that is needed to maintain this minimum is paid off in the subsequent month if there is sufficient cash. Interest on​ short-term loans​ (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month.​ Thus, if in the month of April the firm expects to have a need for an additional​ $60,500, these funds would be borrowed at the beginning of April with interest of​ $605 (0.12times×​1/12times×​$60,500) owed for April and paid at the beginning of May.

a. Prepare a cash budget for Sharpe covering the first 7 months of 2016.

Fill in the Collections for the month of​ January:  ​(Round to the nearest​ dollar.)

b. Sharpe has​ $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the​ notes?

Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment has an expected life of 6 years and will be depreciated using 5-year MACRS with rates of .20, .32, .192, .1152, .1152, and .0576 (note that 5-year MACRS depreciation actually takes place over 6 years). There is no actual salvage value. Mass Financing has offered to lease the equipment to Mattel for $148,000 a year for 6 years. Mattel has a cost of equity of 10.8 percent, a pre-tax cost of debt of 6.5 percent, and a marginal tax rate of 25 percent. Should Mattel lease or buy? Mattel should lease because NPV = $21,542.69 Mattel should lease because NPV = $27,630.06 Mattel should buy because NPV = $23,514.35 Mattel should buy because NPV = $28,375.29 Mattel should lease because NPV = $18,589.72

Netgear has no debt, a market value of equity of $1.43 billion, $361 million of cash, and an equity Beta of 2.0. Meanwhile, Westar Energy has $4.02 billion of debt, a market value of equity of $7.16 billion, only $3.36 million of cash, and an equity Beta of 0.33.

Thus these two publicly traded firms have very different capital structures. Netgear is profitable and has been for the last decade; however, the firm’s management appears to be quite averse to debt, while the opposite can be stated for Westar Energy. Is the management of Netgear ignorant of the tax benefits of debt or does something else drive their decision to have no debt? How can one explain the sharp difference in capital structure between these two firms?

Lexmark Corporation is considering leasing a new equipment. The lease lasts for 8 years. The lease calls for 8 payments of $109,000 per year with the first payment occurring immediately. The equipment would cost $712,000 to buy and would be straight-line depreciated to a zero salvage value over 8 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6.5%. The corporate tax rate is 25%. The actual pre-tax salvage value is $50,000. What would the NPV of the lease relative to the purchase be? -$13,418.59 -$15,096.83 $10,256.37 $13,628.39 $16,200.15

Use what you have learned about the time value of money to analyze each of the following decisions:

Decision #1:   Which set of Cash Flows is worth more now?

Assume that your grandmother wants to give you generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive:

Option A: Receive a one-time gift of $ 10,000 today.   

Option B: Receive a $1400 gift each year for the next 10 years. The first $1400 would be

     received 1 year from today.                 

Option C: Receive a one-time gift of $17,000 10 years from today.

Compute the Present Value of each of these options if you expect the interest rate to be 3% annually for the next 10 years.    Which of these options does financial theory suggest you should choose?

       Option A would be worth $__________ today.

      Option B would be worth $__________ today.

       Option C would be worth $__________ today.

       Financial theory supports choosing Option _______

Compute the Present Value of each of these options if you expect the interest rate to be 6% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

       Option A would be worth $__________ today.

       Option B would be worth $__________ today.

       Option C would be worth $__________ today.

      Financial theory supports choosing Option _______

Compute the Present Value of each of these options if you expect to be able to earn 9% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

       Option A would be worth $__________ today.

       Option B would be worth $__________ today.

       Option C would be worth $__________ today.

       Financial theory supports choosing Option _______

Decision #2 begins at the top of page 2!

Decision #2: Planning for Retirement

Erich and Mallory are 22, newly married, and ready to embark on the journey of life.   They both plan to retire 45 years from today. Because their budget seems tight right now, they had been thinking that they would wait at least 10 years and then start investing $1800 per year to prepare for retirement. Mallory just told Erich, though, that she had heard that they would actually have more money the day they retire if they put $1800 per year away for the next 10 years - and then simply let that money sit for the next 35 years without any additional payments – then they would have MORE when they retired than if they waited 10 years to start investing for retirement and then made yearly payments for 35 years (as they originally planned to do).   Please help Erich and Mallory make an informed decision:   

Assume that all payments are made at the END a year (or month), and that the rate of return on all yearly investments will be 7.5% annually.  

(Please do NOT ROUND when entering “Rates” for any of the questions below)

1. How much money will Erich and Mallory have in 45 years if they do nothing for the next 10 years, then put $1800 per year away for the remaining 35 years?

2. How much money will Erich and Mallory have in 10 years if they put $1800 per year away for the next 10 years?

b2) How much will the amount you just computed grow to if it remains invested for the remaining

35 years, but without any additional yearly deposits being made?

3. How much money will Erich and Mallory have in 45 years if they put $1800 per year away for each of the next 45 years?

4. How much money will Erich and Mallory have in 45 years if they put away $150
5. per MONTH at the end of each month for the next 45 years? (Remember to adjust 7.5% annual rate to a Rate per month!)

6. If Erich and Mallory wait 25 years (after the kids are raised!) before they put anything away for retirement, how much will they have to put away at the end of each year for 20 years in order to have $700,000 saved up on the first day of their retirement 45 years from today?

QUESTION

MKV Plc is a manufacturing company based in Central Province part of Zambia. The company is evaluating an investment proposal to manufacture special product called ‘HUA’, which has performed well in test marketing trials conducted. MKV spent K20,000 on test marketing trails.The following information relating to this investment proposal has now been prepared.

Initial investment                                                       K2 million

Selling price (current price terms)                            K20 per unit

Expected selling price inflation                                 3% per year

Variable operating costs (current price terms)          K8 per unit

Fixed operating costs (current price terms)             K170,000 per year

Expected operating cost inflation                              4% per year

The demand forecast as a result of the test marketing trials are as follows:

Year                                        1                                  2                                  3                      4

Demand (units)                       60,000                         70,000                         120,000             45,000

It is expected that all units of ‘HUA’ produced will be sold, in line with the company’s policy of keeping no inventory of finished goods. No terminal value or machinery scrap value is expected at the end of four years, when production of ‘HUA’ is planned to end. The minimum expected return by the investors from this investment is 11% and a target return on capital employed of 32% per year. The company target payback period is 2.1 years. Ignore taxation.

Required by showing all the workings and formulars:

a) Calculate the following values for the investment proposal:

• Net Present Value;
• Internal Rate of Return;
• Accounting Rate of Return based on average investment;
• Payback Period.

b) Explain your findings in each section of (a) above and advise whether the investment proposal is financially                       

What do you consider to be the advantages and disadvantages of buying when issued stock rather than “regular way” shares?

You must evaluate a proposal to buy a new milling machine. The base price is $120,000, and shipping and installation costs would add another $6,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $48,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $4,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $57,000 per year. The marginal tax rate is 35%, and the WACC is 8%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. How should the $4,500 spent last year be handled? Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. The cost of research is an incremental cash flow and should be included in the analysis. Only the tax effect of the research expenses should be included in the analysis. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent. $ What are the project's annual cash flows during Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest cent. Year 1: $ Year 2: $ Year 3: $ Should the machine be purchased?

Marlene Bellamy purchased 400 shares of Writeline Communications stock at $ 56.26 per share using the prevailing minimum initial margin requirement of 60 % . She held the stock for exactly 6 months and sold it without any brokerage costs at the end of that period. During the 6 ​-month holding​ period, the stock paid $ 1.63 per share in cash dividends. Marlene was charged 7.2 % annual interest on the margin loan. The minimum maintenance margin was 25 % .

d. ​(1) If the sale price at the end of the 6-month holding period is $50.19, the​ Marlene's annualized rate of return is?
(2) If the sale price at the end of the 6-month holding period is $60.57, the​ Marlene's annualized rate of return is?
​(3) If the sale price at the end of the 6-month holding period is $70.46, the​ Marlene's annualized rate of return is?

explain compounding and discounting ..please no copy and paste, I can google that myself.

Erin McQueen purchased 80 shares of​ BMW, a German stock traded on the Frankfurt​ Exchange, for euro 65.4 ​(euros) per share exactly one year​ ago, when the exchange rate was 0.68 euro ​/US$. Today the stock is trading at euro 71.3 per​ share, and the exchange rate is 0.75 euro ​/US$. ​(Enter all losses as negative​ numbers.)
c. For how much in​ US$ can Erin sell her BMW shares​ today?
d. Ignoring brokerage fees and​ taxes, how much profit​ (or loss) in​ US$ will Erin realize on her BMW stock if she sells it​ today?

Sheridan, Inc., has outstanding bonds that will mature in six years and pay an 8 percent coupon semiannually. If you paid $1,093.30 today and your required rate of return was 5.5 percent.

How much should you have paid for the bond?

Did you pay the right price for the bond?