1.)

A)The P/E ratio of stock A is 25. The P/E ratio of stock B is 45. Their expected returns are the same. Why is the P/E ratio of stock B higher than that of stock A?

B) The P/E ratio of stock A is 25. The P/E ratio of stock B is 45. Their expected growth rate is the same. Why is the P/E ratio of stock B higher than that of stock A?

We are evaluating a project that costs $880,000, has a life of 14 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 146,000 units per year. Price per unit is $38, variable cost per unit is $23, and fixed costs are $894,080 per year. The tax rate is 22 percent, and we require a return of 11 percent on this project.

1a. Calculate the accounting break-even point.

1b. What is the degree of operating leverage at the accounting break-even point?

2a. Calculate the base-case cash flow.

2b. Calculate the NPV.

2c. What is the sensitivity of NPV to changes in the quantity sold?

2d. What your answer tells you about a 500-unit decrease in the quantity sold?

3a. What is the sensitivity of OCF to changes in the variable cost figure?

3b. How much will OCF change if variable costs decrease by $1?

QUESTION 7: You bought 250 shares of McWeber Inc. stock on margin. Price paid was $75 per share. The initial margin is 60%. The maintenance margin is 25%. A. What is the initial equity per share? (2 points) B. What is the loan amount per share? (2 points) C. How low can the price fall before there is a margin call? (2 points) D. Assume the price falls to $36. What is the amount of the margin call? (3 points) E. Assume the price did not fall. Instead the price increased to $92 and you sold the stock. During the nine month period in which you held the stock you received dividends of $.82 each quarter. Assume also that the annual interest rate charged on the loan amount is 8%. What is the holding period return on your invested capital (i.e. your equity investment) for the 9-month holding period? (5 points)

^{**ONLY NEEDING THE ANSWER TO PART E!!!!!!!!!!!!!!!!}

1-Even on a gold standard, a central bank cannot go bankrupt.

True

False

2-The more layers there are in the banking system, the more the money supply can be expanded

True

False

3-If it wasn’t for their central bank, Canada would have been unable to survive the Great Depression

True

False

4-The problem with banks issuing their own bank notes is that this can cause inflation

True

False

Boston Cube Inc. currently has no debt, annual free cash flows of $52 million and an average tax rate of 34%. Free cash flows are expected to grow by 7% per year forever.

Using the CAPM, the firm estimates that its cost of equity is 12%. The risk-free rate is 2% and the expected equity market risk premium is 7%. There are 8 million shares outstanding.

The firm is considering a new capital structure with a debt-to-capital ratio of 50%. The company would issue bonds to repurchase its own shares at the current market price. An investment bank has estimated that the yield to maturity on the company's bonds would be 6%.

1.) What is the stock price before the recapitalization?

2.) What will be the WACC after the recapitalization?

3.) What will be the stock price after the recapitalization?

QUESTION 3

1. Suppose the one-year, two-year, three-year, and four-year spot rates are determined to be 1%, 2%, 3%, and 4%, respectively. What is the yield to maturity of a four-year, 5% annual coupon paying bond?

Victor Connors work at Home Trust Mortgage (HTM) company. One of his duties at work is to prepare informative tables, charts and graphs showing monthly payments to clients for various loan amounts. You are Victor’s assistant. You should help him with the following: Consider a $300,000 loan to be repaid in equal end of month installments for the next 30 years at an interest rate of 4.25 percent (compounded monthly). Now answer the following based on the loan above:

1. Calculate monthly payments to pay off the mortgage.

2. Set up an amortization schedule. What is the remaining balance after 6 years (72 payments)?

3. Create a graph showing how the monthly payments are shared between interest and principal. How much is paid towards interest payments over these 30 years. 4. What would be your overall savings if the interest rate were to decline to

4.125 percent instead of 4.25 percent original rate if you made an initial payment of $2,000? Is it worth making this payment.

Make sure to answer questions 1, 2, and 3 in Sheet 1 and question 4 in Sheet 2.

You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 21 million. The cash flows from the project would be SF 5.9 million per year for the next five years. The dollar required return is 14 percent per year, and the current exchange rate is SF 1.11. The going rate on Eurodollars is 4 percent per year. It is 2 percent per year on Euroswiss. Use the approximate form of interest rate parity in calculating the expected spot rates.

a. Convert the projected franc flows into dollar flows and calculate the NPV.

You plan to retire in year 20
Your retirement will last 25 years starting in year 21
You want to have $50,000 each year of your retirement.
How much would you have to invest each year, starting in one year, for 15 years , to exactly pay for your retirement ,if your investments earn 6.00% APR (compounded annually)?

Answers:

$21,349

$21,546

$20,930

$20,520

How do you understand efficient market hypothesis(EMH), and why does it important?

View the video “The Time Value of Money”. This video will walk you through present and future values of money. How are the concepts of PV and FV important when we talk about your personal financial management of money? What is the importance of creating a budget? How can you make changes in your personal routine in order to stick to a budget—what challenges might you face?

Project M has a cost of $65,125, expected net cash inflows of $13,000 per year for ten years, and a cost of capital of 11%. What is the project’s NPV? What is the project’s discounted payback period?

You are the money manager of a 5 stock portfolio with the following investment amounts in each one: $10 million, $2 million, $5 million, $6 million and $500,000. The betas of the 5 stocks are 1.25, -1.75, 1.00, 0.75 and 1.9, respectively. The market's required return is 14% and the risk free return is 4.8%. What is the required return on this portfolio?