what is the difference between idiosyncratic and systemic risk? please give an example of each. which one can be eliminated through diversification? how do we measure a company's systemic risk?
In: Finance
Describe the characteristics and benefits of interest
rate swaps compared with other forms of interest rate risk
management, such as forward rate agreements and interest rate
futures
In: Finance
Suppose your company needs to raise $43 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives: A semiannual coupon bond with a 6 percent coupon rate and a zero coupon bond. Your company’s tax rate is 35 percent. Assume a par value of $1,000
| a-1. | How many of the coupon bonds would you need to issue to raise the $43 million? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Number of coupon bonds |
| a-2. | How many of the zeroes would you need to issue? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Number of zero coupon bonds |
| b-1. |
In 30 years, what will your company’s repayment be if you issue the coupon bonds? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Coupon bonds repayment | $ |
| b-2. |
What if you issue the zeroes? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Zeroes repayment | $ |
| c. |
Calculate the firm’s aftertax cash outflows for the first year for each bond. (Enter your answers as positive values in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) |
| Coupon bonds |
| $ | |
| Zero coupon bonds |
| $ | ||
In: Finance
Halliford Corporation expects to have earnings this coming year of $3.29 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 48 % of its earnings. It will then retain 20 %of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 27.77 %per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 9.6 %, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate times × rate of return. The price per share is $. ?. (Round to the nearest cent.)
In: Finance
You have $243358 to invest in a stock portfolio (this amount is your original wealth). Your choices are Stock H, with an expected return of 15.62 percent, and Stock L, with an expected return of 10.48 percent. Legal constraints require you to invest at least $45252 in stock L. If your goal is to create a portfolio with an expected return of 21.52 percent on your original wealth, what is the minimum amount you must borrow (and subsequently repay) at the risk free rate of 4.41 percent to achieve your goal? Answer in $ to two decimals.
In: Finance
Exchange rate movement
Suppose a basket of goods in Paris cost 133 euros and the same
basket purchased in
New York cost $153.
A. At what exchange rate between euros and dollars is
the cost of the basket of goods the same in each City?
B. Now suppose that over the next year inflation in
France is expected to be 2% while in the US the forecast is
for 6% inflation. What exchange rate do you expect a year from
today?
In: Finance
Explain how the debt mechanism can be a leverage in the company?
In: Finance
You have the following information about the yield curve – Term 1 2 3 4 Rate 4% 4.50% 5% 5.50% What should be the price of a bond with a face value of $100 and an annual coupon of 5% that matures in 4 years. Show all calculations.
In the above question if the market price of the bond is $95, can you do arbitrage? Show how and your profit or loss. Show all calculations.
If the market price of the bond is $115, can you do arbitrage? Show how and your profit or loss. Show all calculations.
Estimate the 1-year forward rate 1 year from now. Show all calculations.
Estimate the 1-year forward rate 2 years from now. Show all calculations.
Estimate the 1-year forward rate 3 years from now. Show all calculations.
In: Finance
a). Compute the current value of a share of common stock of a company whose most recent dividend was RM2.50 and is expected to grow 3% per year for the next 5 years, after which the dividend growth rate will increase to 6% per year indefinitely. Assume 10% required rate of return.
b).You are considering to purchase the stock of Tambunan Tea Bhd. You expect it to pay a dividend of RM3 in 1 year, RM4.25 in 2 years and RM6.00 in 3 years. You expect to sell the stock for RM100 in 3 years. If your required of return for the stock is 12%, how much would you pay for the stock today?
c). A firm owns a building with a book value of RM 150,000 and a market value of RM250,000. If the building is utilized for a project, what would be the opportunity cost (ignore the taxes). Explain your answer.
d). The cost of a new machine is RM250,000. The machine has a 3-year life and zero salvage value. If the cash flow each year is equal to 40% of the cost of the machine, calculate the payback period for the project.
e). Luanti Corp. is considering investing in a new project. The project will need an initial investment of RM2,400,000 and will generate RM1,500,000(before tax) cash flows for three years. If the tax rate is 20%, calculate the IRR for the project.
In: Finance
10-4 Suppose that five years ago Cisco Systems sold a 15 years bond issue that had a $1000 par value and a 7 percent coupon rate. Interest is paid semiannually.
a- If the going interest rate has risen to 10 percent, at what price would the bonds be selling today?
b- Suppose that the interest rate remained at 10 percent for the next 10 years. What would happen to the price of Cisco's bonds over time?
In: Finance
|
FINANCIAL LEVERAGE EFFECTS The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $16 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $4.6 million with a 0.2 probability, $1.5 million with a 0.5 probability, and $0.6 million with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations. Debt/Capital ratio is 0.
Debt/Capital ratio is 10%, interest rate is 9%.
Debt/Capital ratio is 50%, interest rate is 11%.
Debt/Capital ratio is 60%, interest rate is 14%.
|
In: Finance
How does a cross-currency swap hedge the equity stake?
In: Finance
Altman’s original Z-score bankruptcy model takes five key ratios into account:
a. working capital / total assets
b. retained earnings / total assets
c. earnings before interest and taxes / total assets
d. market value of equity / total liabilities
e. sales / total assets
Discuss the reasons why these ratios are linked to the probability of going into bankruptcy, and comment on their relative importance.
In: Finance
Compare the financial reports from Disney, Hilton Worldwide, Starwood, Intercontinental, Marriott International, and Marriott Vacations.
Disney Company:
| Report Date | 09/29/2018 | 09/30/2017 | 10/01/2016 | 10/03/2015 | 09/27/2014 |
| Total equity | 52,832,000 | 45,004,000 | 47,323,000 | 48,655,00 | 48,178,000 |
Hilton Worldwide:
| Report Date | 12/31/2018 | 12/31/2017 | 12/31/2016 | 12/31/2015 | 12/31/2014 |
| Total Equity | 558 | 2,075 | 5,849 | 5,951 | 4,714 |
Starwood Hotels:
Key Financials
(In USD as of 06/30/2016)
| Income Statement | |
|---|---|
| Revenue | 5,517m |
| Net Income | 81m |
| EPS from Continuing Operations | 1.84 |
| EPS - Net Income - Diluted | 0.48 |
| Revenue per Share | 32.84 |
| Balance Sheet | |
| Total Assets | 6,922m |
| Total Liabilities | 6,748m |
| Shareholders' Equity | 174m |
| Total Assets per Share | 40.83 |
| Net Assets per Share | 1.03 |
| Cash Flows | |
| Cash from Operations | 740m |
| Cash from Investing | 313m |
| Cash from Financing | -204m |
| Capital Expenditures | 222m |
| Cash Flow per Share | 4.40 |
Marriott International:
| Report Date | 12/31/2018 | 12/31/2017 | 12/31/2016 | 12/31/2015 | 12/31/2014 |
| Total Marriott International, Inc. shareholders' equity (deficit) | 2,225 | 3,731 | 5,357 | (3,590) | (2,200) |
Marriott Vacations:
| Report Date | 12/31/2018 | 12/31/2017 | 12/30/2016 | 01/01/2016 | 01/02/2015 |
| Total Equity | 3,466,000 | 1,045,020 | 907,819 | 976,267 | 1,080,000 |
In: Finance
Bellwood Corp. is comparing two different capital structures. Plan I would result in 12,700 shares of stock and $109,250 in debt. Plan II would result in 9,800 shares of stock and $247,000 in debt. The interest rate on the debt is 10 percent.
a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $79,000. The all-equity plan would result in 15,000 shares of stock outstanding. Which of the three plans has the highest EPS? The lowest?
b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? Is one higher than the other? Why?
c. Ignoring taxes, when will EPS be identical for Plans I and II?
d. Repeat parts (a), (b), and (c) assuming that the corporate tax rate is 21 percent. Are the break even levels of EBIT different from before? Why or why not?
In: Finance