​Rally, Inc., is an​ all-equity firm with assets worth $ 24 billion and 6 billion shares outstanding. Rally plans to borrow $ 10 billion and use funds to repurchase shares.​ Rally's corporate tax rate is 38 %​, and Rally plans to keep its outstanding debt equal to $ 10 billion permanently.

a. Without the increase in​ leverage, what would be​ Rally's share​ price?

Without the increase in​ leverage, Rally's share price is ​$ nothing. ​ (Round to the nearest​ cent.)

b. Suppose Rally offers $ 4.49 per share to repurchase its shares. Would shareholders sell for this​ price?

▼ Yes/No . ​(Select from the​ drop-down menu.) The minimum share price they would sell for is ​$ nothing. ​ (Round to the nearest​ cent.)

c. Suppose Rally offers $ 4.79 per​ share, and shareholders tender their shares at this price. What will be​ Rally's share price after the​ repurchase?

If Rally offers $ 4.79 per​ share, and shareholders tender their shares at this​ price, the share price after the repurchase will be ​$ nothing. ​(Round to the nearest​ cent.)

d. What is the lowest price Rally can offer and have shareholders tender their​ shares? What will be its stock price after the share repurchase in that​ case?

The lowest offer per share is ​$ nothing. ​ (Round to the nearest​ cent.) The stock price after repurchase is ​$ nothing. ​ (Round to the nearest​ cent.)

A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $25,088.00 per year for 8 years and costs $104,097.00. The UGA-3000 produces incremental cash flows of $27,444.00 per year for 9 years and cost $124,467.00. The firm’s WACC is 7.75%. What is the equivalent annual annuity of the GSU-3300?

A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $26,762.00 per year for 8 years and costs $103,375.00. The UGA-3000 produces incremental cash flows of $29,533.00 per year for 9 years and cost $125,250.00. The firm’s WACC is 8.97%. What is the equivalent annual annuity of the UGA-3000?

Thanks!

Considering Purchasing Power Parity and the Law of One Price:

a. Assume that the current price of a Big Mac in the United States today is $2.75. Assume also that the current price of a Big Mac in Malaysia is 6.5000 ringgits and that the current USDMYR exchange rate is 3.0250 ringgits per $. What is the implied PPP of the USD?

b. Using the assumptions above, what is the under (-) / over (+) valuation of Malaysian ringgits versus the U.S. dollar in percentage terms?

c. What are the long-term implications associated with your answer to part b.?

Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8.6% coupon rate and pays the $86 coupon once per year. The third has a 10.6% coupon rate and pays the $106 coupon once per year. a. If all three bonds are now priced to yield 8.6% to maturity, what are their prices? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Zero 8.6% Coupon 10.6% Coupon Current prices $ 1000 $ 10 $ b-1. If you expect their yields to maturity to be 8.6% at the beginning of next year, what will their prices be then? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Zero 8.6% Coupon 10.6% Coupon Price one year from now $ $ $ b-2. What is your rate of return on each bond during the one-year holding period? (Do not round intermediate calculations.Round your answers to 2 decimal places.) Zero 8.6% Coupon 10.6% Coupon Rate of return % % %

inancing Deficit

Garlington Technologies Inc.'s 2016 financial statements are shown below:

Balance Sheet as of December 31, 2016

Income Statement for December 31, 2016

Suppose that in 2017 sales increase by 20% over 2016 sales and that 2017 dividends will increase to $200,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 8%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.

Suppose that zero interest rates with continuous compounding are as follows:

Calculate forward interest rates for the second, third, fourth, and fifth years.

Describe the short-falls, if any, of PPP as a predictor of currency exchange rates?

pton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2016, is shown here (millions of dollars):

Sales for 2016 were $425 million and net income for the year was $12.75 million, so the firm's profit margin was 3.0%. Upton paid dividends of $5.1 million to common stockholders, so its payout ratio was 40%. Its tax rate was 40%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2017. Do not round intermediate calculations.

1. If sales are projected to increase by $90 million, or 21.18%, during 2017, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
   $ million
   
2. Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.
   %

Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2017. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt).
Assume Upton's profit margin and dividend payout ratio will be the same in 2017 as they were in 2016. What is the amount of the line of credit reported on the 2017 forecasted balance sheets? (Hint: You don't need to forecast the income statements because the line of credit is taken out on last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2017 addition to retained earnings for the balance sheet without actually constructing a full income statement.) Round your answers to the nearest cent.

QUESTION 3

1. One of the benefits of having active financial markets is the information we can get from those markets. Questions like what is an appropriate yield to maturity on a bond or cost of equity for a given security can be determined by looking at information from financial markets on similar securities.

   True

   False

1 points   

QUESTION 4

1. One of the costs of active financial markets is that they make it more difficult to diversify and reduce risk. Risk becomes more concentrated among a few investors active.

   True

   False

Jetson Industries has a share price of $ 21.57 today. If Jetson is expected to pay a dividend of $ 0.86 this year and its share price is expected to grow to $ 24.83 at the end of the​ year, what is​ Jetson's dividend yield and equity cost of​ capital?

Consider the following three bonds:

Assume that coupons are paid every 6 months and the face values of all the bonds are $1,000.

(a) Determine the spot rate curve. (That is, determine s_0.5, s₁, and s_1.5 in yearly terms.) (Keep 4 decimal places, e.g. 0.1234)

     s_0.5:          s₁:            s_1.5 :

(b) Suppose that the 0.5- and 1.5-year zero-coupon bonds are available. Determine their respective prices. (Keep 2 decimal places, e.g. xxx.12)

     P_Z0.5:               P_Z1.5:

(c) Determine the forward rate f _0.5,1 (in yearly term) on a 6-month Treasury bill 6 months from now. (Keep 4 decimal places, e.g. 0.1234)

(d) Determine the forward rate f_0.5,1.5 (in yearly term) on a 12-month Treasury bill 6 months from now. (Keep 4 decimal places, e.g. 0.1234)

(e) Price the 1.5-year coupon bond 6 months from now. (Keep 2 decimal places, e.g. xxx.12)?

Here are some data on DCRB options as of May 14. Current stock price is $125.94, expirations are May 21, June 18, and July 16, and the risk-free rates are 0.0447, 0.0446, and 0.0453 respectively.

                                                          CALLS                                                                          PUTS

Draw a payoff diagram, and calculate the maximum loss, maximum gain, and breakeven for each of the following strategies.

Question 1: A call bull spread strategy: long the June 125 and short the June 130 calls.

Question 2: A put bear spread: long the June 130 put and short the June 125 put.

Question 3: Buy the stock at $125.94, buy the July 120 put for $13.65, and sell a call that has the same price, $13.65. But no such call exists! It turns out that I can “create” such a call if its exercise price were $136.165.    [Hint: this is a collar.]

A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0 1 2 3 4 5 Project M -$6,000 $2,000 $2,000 $2,000 $2,000 $2,000 Project N -$18,000 $5,600 $5,600 $5,600 $5,600 $5,600 Calculate NPV for each project. Round your answers to the nearest cent. Do not round your intermediate calculations. Project M $ Project N $ Calculate IRR for each project. Round your answers to two decimal places. Do not round your intermediate calculations. Project M % Project N % Calculate MIRR for each project. Round your answers to two decimal places. Do not round your intermediate calculations. Project M % Project N % Calculate payback for each project. Round your answers to two decimal places. Do not round your intermediate calculations. Project M years Project N years Calculate discounted payback for each project. Round your answers to two decimal places. Do not round your intermediate calculations. Project M years Project N years Assuming the projects are independent, which one(s) would you recommend? If the projects are mutually exclusive, which would you recommend? Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?