Elliot Karlin is a​ 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the​ bank's investments​ department, he's well aware of the concept of duration and decides to apply it to his bond portfolio. In​ particular, Elliot intends to use $ 1 million of his inheritance to purchase 4 U.S. Treasury​ bonds: 1. An 8.66 %​, ​13-year bond​ that's priced at $ 1,096.15 to yield 7.49 %. 2. A 7.776 %​, ​15-year bond​ that's priced at $ 1016.49 to yield 7.59 %. 3. A​ 20-year stripped Treasury​ (zero coupon)​ that's priced at $ 198.52 to yield 8.25 %. 4. A​ 24-year, 7.41 % bond​ that's priced at $ 956.93 to yield 7.81 %. Note that these bonds are semiannual compounding bonds. a. Find the duration and the modified duration of each bond. b. Find the duration of the whole bond portfolio if Elliot puts $ 250,000 into each of the 4 U.S. Treasury bonds. c. Find the duration of the portfolio if Elliot puts $ 370,000 each into bonds 1 and 3 and $ 130,000 each into bonds 2 and 4. d. Which portfolio-b or c-should Elliot select if he thinks rates are about to head up and he wants to avoid as much price volatility as​ possible? Explain. From which portfolio does he stand to make more in annual interest​ income? Which portfolio would you​ recommend, and​ why?

Cochran Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $1,950,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,145,000 in annual sales, which costs $1,205,000. If the tax rate is 35%, , OCF is $838,500.Calculate the NPV using the required return of 14% using the cash flows from the previous problem. And Do some sensitivity analysis. Suppose the president lowered the tax rate to 30%. Calculate the NPV again using a 14% required return.

Which of the following statements is CORRECT?

Dividends are always paid by a corporation.

EBIT has already been taxed.

One way of using the excess cash is to pay the shareholders a dividend. Another way might be a firm buying its own stock back.

If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation.

For profit firms write large checks for depreciation expense.

Analysts who follow Howe Industries recently noted that, relative to the previous year, the company’s net cash provided from operations increased, yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

The company cut its dividend.

The company made large investments in fixed assets.

The company sold a division and received cash in return.

The company issued new common stock.

The company issued new long-term debt.

The Nantell Corporation just purchased an expensive piece of equipment.Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years.Other things held constant, which of the following will occur as a result of this Congressional action?Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

Nantell’s taxable income will be lower.

Nantell’s operating income (EBIT) will increase.

Nantell’s cash position will improve (increase).

Nantell’s reported net income for the year will be lower.

Nantell’s tax liability for the year will be lower.

4).      Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

a.   The periodic rate of interest is 2% and the effective rate of interest is 4%.

b.   The periodic rate of interest is 8% and the effective rate of interest is greater than 8%.

c.   The periodic rate of interest is 4% and the effective rate of interest is less than 8%.

d.   The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.

e.   The periodic rate of interest is 8% and the effective rate of interest is also 8%.

Edelman Engines has $18 billion in total assets — of which cash and equivalents total $120 million. Its balance sheet shows $3.6 billion in current liabilities — of which the notes payable balance totals $1.04 billion. The firm also has $9.9 billion in long-term debt and $4.5 billion in common equity. It has 300 million shares of common stock outstanding, and its stock price is $26 per share. The firm's EBITDA totals $1.248 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations. Round your answers to two decimal places.

m/b

ev/ebitda

Amira sells auto parts from her home. She usually sells the parts to her neighbors and friends. She has been doing this for a long time. Emma owns a factory that makes auto parts. Emma has sold auto parts to Amira each year for the past ten years. Both Emma and Amira try to do what everyone else in the auto parts business does, which is selling the parts and then installing them. One day, Amira decides that she wants more money. Amira still plans on doing business from her home. Amira asks Emma, “I will pay you what I always have paid you for your nicest auto parts. Just let me know” Emma doesn’t answer but, a week later, Emma delivers, at Amira’s mother’s house, half the number of fuel filters that she usually has delivered to Amira. Three weeks later, Emma delivers the other half of the fuel filters to Amira’s mother’s house. Emma then goes on the first vacation that she has ever taken in her whole life, leaving the country for twenty years. After both deliveries of the parts, Amira had found the parts at her mother’s house by accident. Amira does not even look at the filters until two months after Emma has already left for vacation and then finds that a third of them don’t work. By then, Amira has no way to contact Emma. Unfortunately, mechanic Melinda, whom Amira has hired sometime to install auto parts because Melinda always gives Amira a 50% discount in installation cost, also left the country just yesterday. Now, it is too late for Amira to ask Melinda to install the parts that do work properly. Amira tells Jordyn, another mechanic, about all the trouble Amira is having. Jordyn, without first telling Amira, goes ahead and installs the parts and sends Amira a bill for three times the usual installation fee. This is just the way that Jordyn does business. Jordyn knows that Amira has never paid anyone more than the usual installation fee, but Jordyn does the installation anyway because Jordyn was feeling lucky. Identify all pertinent legal issues, making sure to give the names of specific legal concepts and applying the facts to the issues. Also, what are both duties and rights that all the parties have? Make sure that you identify and explain all possibilities.

Which of the following statements is correct, assuming positive interest rates and holding other things constant?

A) Banks A and B offer the same nominal annual rate of interest, but A pays interest daily and B pays semiannually. A deposit in Bank B will have a higher value in five years.

B) Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays monthly. A deposit in Bank B will have a higher value in five years.

C) Banks A and B offer the same annual rate of interest, but A pays interest quarterly and B pays semiannually. A deposit in Bank A will have a higher value in five years.

D) Banks A and B offer the same nominal annual rate of interest, but A pays interest weekly and B pays quarterly. A deposit in Bank B will have a higher value in five years

Right now, the Federal Reserve is pursuing a policy of quantitative easing for the third time in the last four years. This means introducing hundreds of billion dollars into the economy in an effort to stimulate investment within the private sector. Describe the mechanisms the Fed uses to do this, and explain why you think this would or would not be effective at stimulating investment.

Table 12.1

Refer to Table 12.1 and look at the period from 1973 through 1980.

1. Calculate the average return for Treasury bills and the average annual inflation rate for this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b.            Calculate the standard deviation of Treasury bill returns and inflation over this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

c.            What was the average real return for Treasury bills over this period? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

There are many different bond portfolio management strategies, e.g., passive, indexing, immunization, and active.  explain each strategy how it can be used to manage a bond portfolio.

Calculate “Operating” Cash Flow, ΔNet Working Capital, Net Capital Spending, Cash Flow from Assets, Cash Flow to Creditors, and Cash Flow to Shareholders. Please show work and equations.

Problem: Sam has requested that you (1) identify all of the cash flows for this project, (2) calculate the project's NPV and IRR, and (3) provide your recommendation regarding whether the project should be accepted or rejected. The details of your cash-flow projections should be clearly presented. Show all work.

ABC Company is examining a new capital-investment proposal that would greatly increase the production of diapers. The proposal involves an investment in some machines that would increase the firm's efficiency at producing and preparing for export the top-quality diapers for which the region has become well-known. The purchase price of this machinery is $840,000 and installation costs would total $60,000. The equipment would have a useful life of 5 years and, for tax purposes, depreciation charges would be according to the 7-year-asset MACRS schedule. The machinery cost and the installation costs should be capitalized at t=0 and fully depreciated using the MACRS schedule. Management expects the machinery to be sold for a scrap value of $210,790 at the end of year 5. Ramon Rodriguez, the firm's accountant, pointed out that the portion of the factory that would house this new equipment machinery underwent a major 'renovation' 15 months ago with a total cost of $105,200. Because the project would not have been feasible without the renovation, Ramon suggests that the costs of the renovation should be allocated to the project as one of its initial expenses. Interest charges associated with this investment’s financing have been estimated at approximately $70,000 per year, for each year of the project's estimated useful life. The incremental sales (revenues) projections for this investment are shown near the end of this problem statement. Variable operating costs, excluding depreciation, are projected to be 40% of same-year sales. Incremental fixed costs (for maintenance, etc.) are projected to be $25,000 in the first year. For each of the remaining years of operation, this fixed-cost component is projected to increase by 2% per year. If the new machinery is purchased, some of ABC Company’s Net Working Capital (NWC) accounts will be affected. The schedule near the end of the problem statement shows balances for Accounts Receivable, Inventory, and Accounts Payable across the project’s life. Of course, you’ll need to use this information to build the NWC Tracker, which in turn feeds into the ΔNet Working Capital term in the cash-flow worksheet. The Chief Financial Officer of ABC Company, Sam Sand, requests your assistance in preparing an analysis of the net cash flow projections for the proposed investment. Sam believes that the systematic risk of this project is similar to the average systematic risk of other ABC projects. The firm-level required return (also called “hurdle rate” in business lingo) is 10%/year. Sam also indicates that 30% is the appropriate tax rate for this entire analysis. You also have the following information: Sales projections are these for years 1-5: $300,000, $420,000, $510,000, $600,000, and $480,000. The MACRS depreciation schedule for a 7-year asset is as follows: year 1: 14.29%; year 2: 24.49%; year 3: 17.49%; year 4: 12.49%; year 5: 8.93%; year 6: 8.92%; year 7: 8.93%; and year 8: 4.46%. Next, here is the schedule for the various working-capital accounts that will be affected if the project is undertaken:

Respond to the following in a minimum of 175 words:

• How would you choose to invest your retirement savings? Why did you choose that option(s)?
• What should you take into consideration when beginning to plan for investments?
• How could you address investment risk in your plan?

A company’s Balance Sheet (in millions)

Assets                                                             Liabilities & Equity

Current                        $  80              

Net Fixed                    $120                            Bonds ($1000 Par)                  130

                                                                        Preferred stocks ($100 Par)   40

Total                           $200                            Common Stock ($1 par)         30

                                                                        Total                                       $200

The company's bonds have 10 years to mature, pay 10% coupon rate semi-annually and comparable bonds' YTM is 14%.

The company’s applicable tax rate is 40%.

The market price of common stock is $10.50 per share.

The common stock is constantly growing at a rate of 6%. The same growth rate is expected to continue for long time in the future. The most recent dividend on the common stock was $1.15.

The flotation cost for new common stocks is 10%.

The market value of the preferred stock is $45 and it pays quarterly dividend of $1.25.

The flotation cost on issuing new preferred stock is 7%

What is the cost of issuing new common stock?

Wilbur and Orville are brothers.​ They're both serious​ investors, but they have different approaches to valuing stocks.​ Wilbur, the older​ brother, likes to use the dividend valuation model. Orville prefers the free cash flow to equity valuation model. As it turns​ out, right​ now, both of them are looking at the same stock Wright First​ Aerodynmaics, Inc.​ (WFA). The company has been listed on the NYSE for over 50 years and is widely regarded as a​ mature, rock-solid,​ dividend-paying stock. The brothers have gathered the following information about​ WFA's stock:

Current dividend ​(Upper D 0​)=​$1.90​/share

Current free cash flow ​(FCF 0​)=$1.5 million

Expected growth rate of dividends and cash flows ​(g​)=8​%

Required rate of return ​(r​)=12​%

Shares outstanding = 400,000 shares

How would Wilbur and Orville each value this​ stock?

The stock price from​ Wilbur's valuation is?

The stock price from​ Orville's valuation is?