Which of the following statements is CORRECT?

Describe Information Asymmetry, Adverse Selectin, and Moral Hazard as they relate to Financial Institutions.

Summarize the history of banking in the United States.

The following information is taken from the records of XYZ Company Calculate the gross profit margin and net profit margin using the above data, and comment on the trend you observe. COGS are $189 million in 2013 and 93 million in 2012 and 66 million in 2011 and 65 million in 2010 and 50 million in 2009 gross profit is 63 million in 2013 and 48 million in 2012 and 54 million in 2011 and 60 million in 2010 and 50 million in 2009. and net profit is :12 million in 2013 and 5 million in 2012 and 15 million in 2011 and 20 million in 2010 and 15 million in 2009

1.True or False. The internal growth rate of a firm is best described as the growth rate at which the firm can grow by using internally generated funds and issuing debt only.

2. You are getting ready to prepare pro forma statements for your business. Which one of the following are you most apt to estimate first as you begin this process?

A. Need for additional fixed assets.

B. Current fixed costs.

C. Projected sales.

D. Desired net income.

3. Which one of the following statements is correct?

A. Book values should always be given precedence over market values.

B. Financial statements are frequently used as the basis for performance evaluations.

C. Reviewing financial information over time has very limited value.

D. Potential lenders place little value on financial statement information.

4. In terms of financial planning, it is as important to plan for the worst-case scenario as it is to plan to the best-case scenario.

A.True

B.False

5. Financial planning accomplishes which of the following for a firm?

I.Determination of asset requirements.

II. Development of contingency plans.

III. Establishment of priorities.

IV. Analysis of funding options.

A Bank has $100 million in capital, and $900 million of checkable deposit. The bank currently maintains a total reserve of $100 million dollars, $200 million in T-bills, and rest in loans. A new corporate customer opens a checkable deposit account, and deposit $100 million.

1a. Please show the T-Account of the bank after the deposit?

1b. If the required reserve ratio is 10%, what is likely to happen?

Describe the role of financial intermediaries.

Suppose you borrowed $1,000. The interest rate is 5% per year.  

You are supposed to payoff the principal in equal semi-annual payments in five years along with the interest rate payments. What are your semi-annual payments?

Now assume that you are supposed to make equal semi-annual payments in the form of annuities for the five years.

Draw the amortization table for the two options.

Company Deemed, Inc., a US-based company, has sold its products to a Chinese Company. At the spot rate of 1 USD = 7 CNY prevailing today the invoice value is 1 million USD. The company will pay in CNY in 90 days. The 90-day forward rate is 1USD = 7.1 CNY. The borrowing rates in US and China are 2% and 8%, respectively. The company’s cost of capital is 10%. The company has to decide between forward market hedge and money market hedge. Do the analysis and make a recommendation.

Please show EXCEL formulas as well.

Why do multinational corporations use tax avoidance strategies even when it might be immoral? Explain at least three of the most widely used strategies of tax management by MNE.

Consider a firm that exists in a world with two periods (time 0 and time 1) and two equally likely states of the world at time 1. At time 0 the firm’s securities are traded. At time 1 the state is revealed. In the up-state the firm’s assets are worth $120 and in the down-state they are worth $40. The firm has debt outstanding with a face value of $60. Assume that the required rate of return is zero and investors are risk neutral. a) Compute the market value of debt, equity and the total market value of the company at time 0. b) Suppose that the company issues some additional debt with a face value of $40. This debt is pari passu (equal priority) with respect to the existing debt and the proceeds are invested in a zero NPV riskless project (i.e., the money is put in a safe box). How much money is the company able to raise with this debt issue?

The market capitalization of this company is $140 million, it's beta is 0.75, the risk free rate is 2% and the market risk premium is 6%.

The project costs $1 million and has expected cashflows of $75,000 a year forever. This same firm now realizes that the project they were considering before has a timing option. Specifically, they can wait a year to see if the product the project will create will catch on in the market, or not. At time 1, they will see whether the product will do well ($100k per year forever), or badly ($50k a year forever). There is an equal probability of the product doing well or badly. If they start the project if it does well, they will pay $1.25million since many of the raw materials to produce this product will be in demand (as opposed to $1 million if they start immediately). If they start the project if it does badly, they will still only pay $1 million to start it.

a) What is the NPV, at time 1, of starting the project?

b) What is the NPV of doing the project at time 1 if the product doesn't do well?

c) What is the overall value of waiting at time 0? (remember to factor in the appropriate decisions to not do the project if the NPV is 0 at time 1, and also to discount time 1 cashflows to time 0).

The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices.

Suppose you closed the spread 60 days later. What will be the profit if the stock price is still at $50?

Brad's Dilemma: Finding a New Job Brad Thomas, a 53-year-old retail store manager earning $75,000 a year, has worked for the same company during his entire 28-year career. Brad was recently laid off and is still unemployed 10 months later, and his severance pay and 6 months' unemployment compensation have run out. Because he has consistently observed careful financial planning practices, he now has sufficient savings and investments to carry him through several more months of unemployment. Brad is actively seeking work but finds that he is overqualified for available lower-paying jobs and under-qualified for higher-paying, more desirable positions. There are no openings for positions equivalent to the manager's job he lost. He lost his wife several years earlier and is close to his two grown children, who live in the same city.

Brad has these options:

Wait out the recession until another retail store manager position opens up.

Move to another area of the country where store manager positions are more plentiful.

Accept a lower-paying job for two or three years and then go back to school evenings to finish his college degree and qualify for a better position.

Consider other types of jobs that could benefit from his managerial skills.

1) What important career factors should Brad consider when evaluating his options?

2) What important personal factors should Brad consider when deciding among his career options?

3) What recommendations would you give Brad in light of both the career and personal dimensions of his options noted in Questions 1 and 2?

4)What career strategies should today's workers employ in order to avoid Brad's dilemma?