What is the difference between the retail or client market and the wholesale or interbank market for foreign exchange?

Shi Import-Export's balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi's tax rate is 30%, r_d = 6%, r_ps = 7.9%, and r_s = 10%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC? Round your answer to two decimal places.

%

After-Tax Cost of Debt

LL Incorporated's currently outstanding 11% coupon bonds have a yield to maturity of 14%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 30%, what is LL's after-tax cost of debt? Round your answer to two decimal places.

%

Your investment club has only two stocks in its portfolio. $30,000 is invested in a stock with a beta of 0.4, and $60,000 is invested in a stock with a beta of 2.2. What is the portfolio's beta? Round your answer to two decimal places.

AA Corporation’s stock has a beta of 1.3. The risk-free rate is 7% and the expected return on the market is 11%. What is the required rate of return on AA's stock? Round your answer to two decimal places.

Cost of Preferred Stock with Flotation Costs

Burnwood Tech plans to issue some $60 par preferred stock with a 7% dividend. A similar stock is selling on the market for $66. Burnwood must pay flotation costs of 7% of the issue price. What is the cost of the preferred stock? Round your answer to two decimal places.

NEW PROJECT ANALYSIS

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $110,000, and it would cost another $27,500 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 $49,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require a $9,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $21,000 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 11%, should the spectrometer be purchased?

1) An unexpected change in exchange rates impacts a firm's expected cash flows at three levels, depending on the time horizon used (Short Run, Medium Run, and Long Run). Describe the three operating exposure's phases of adjustment assuming that parity conditions do not hold among foreign exchange rates, national inflation rates, and national interest rates (disequilibrium).

An asset costs $950,000 and will be depreciated in a straight-line manner over its four-year life. It will have no salvage value. The corporate tax rate is 22 percent and the appropriate interest rate is 8 percent.

a. What would the lease payment have to be to make both the lessor and lessee indifferent about the lease? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. Assume that the lessee pays no taxes and the lessor pays taxes. For what range of lease payments does the lease have a positive NPV for both parties? (Enter your answers from lowest to highest. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

2) Diversification is possibly the best technique for reducing the problems associated with international transactions. Provide one example each of international financial diversification and international operational diversification and explain how the action reduces risk.

7) A.What is the major difference between "currency risk" and "risk of noncompletion"? How are these risks handled in a typical international trade transaction? B. Explain what a letter of credit (L/C) is, who the principle parties are, what the principle advantage is, and how the L/C facilitates international trade.

5) A.There are potential benefits and risks from raising capital on global markets. Discuss the pros and cons in terms of risk of raising capital on global markets. B. List and describe three differences and advantages of Global Registered Shares (GRS) over American Depositary Receipts (ADRs).

Given the following spot rates and assuming the bonds and the time periods are semi-annual:

Time Spot Rate 1 3.00% 2 3.30% 3 3.50% 4 3.90% 5 4.40% 6 4.75% 7 4.95% 8 5.05% 9 5.15% 10 5.25% 11 5.40% 12 5.50% 13 5.60% 14 5.65% 15 5.75% 16 5.80%

1.What is the price of a 4% coupon bond maturing in 5 years?

2. What is the YTM on the above bond?

3. What is the implied forward rate on a two-year bond issue in 18 months?

4. What is the implied forward rate on a 1-year bond issued in 5 years?

5. Suppose a 3-year, 0-coupon bond for delivery in 2 years traded in the futures market. What should its price be?

1) A. What are blocked funds? List and explain two of the three methods the authors list in this chapter for dealing with blocked funds.B. Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.

Compute the NPV for Project M if the appropriate cost of capital is 9 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)

NPV?

Should it be accepted or rejected

OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 7,000 bonds. Suppose the common shares sell for $17 per share, the preferred shares sell for $16 per share, and the bonds sell for 108 percent of par. What weight should you use for preferred stock in the computation of OMG’s WACC? (Round your answer to 2 decimal places.)

XYZ is now evaluating the purchase of a new machine for $210,000 installed with no NWC change. They plan to sell the machine at the end of 3 years for $30,000. MACRS 3 year depreciation. With the more efficient machine, labor savings per year are expected to be $70,000, $94,000 and $76,000 respectively. 40% tax. The cost of capital for this project is 8.%. What is the IRR?