Shanken Corp. issued a 30-year, 5.9 percent semiannual bond
three years ago. The bond currently sells for 106 percent of its face value. The company's tax rate is 22 percent.
a. What is the pretax cost of debt?
b. What is the aftertax cost of debt?
c. Which is more relevant, the pretax or the aftertax cost of debt? Why?

Calculating Cost of Debt.
For the firm in the previous problem, suppose the book value
of the debt issue is $25 million. In addition, the company has a second debt issue on the market, a zero coupon bond with nine years left to maturity; the book value of this issue is $60 million and the bonds sell for 68 percent of par. What is the company's total book value of debt? The total market value? What is your best estimate of the aftertax cost of debt now?

Madsen Motors's bonds have 21 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 8.5%; and the yield to maturity is 11%. What is the bond's current market price? Round your answer to the nearest cent. $

You are working for an active investment group, which is very interested in an office property in Tokyo. The property is 16 years old, well (but not spectacularly) located, with good floor plates, and meets earthquake standards.  

The property is available for $100 million (all payments will be in yen, but I’ll express them in dollars to ease your headaches), which is a mere 20% of the value placed on the property in 1991. The property needs about $20 million in improvements to make it competitive with new properties. The property is currently vacant, as it was the headquarters of a recently liquidated bankrupt company. At the all-in-cost of $120 million the property would have a cost equal to roughly 90% replacement cost, though since land costs are 50-60% of replacement costs, and land prices continue to fall, it is hard to be precise on this estimate.

The local rental market for quality properties is fairly strong in spite of the weak Japanese economy, as tenants continue to take advantage of low rents by moving out of poorly located and designed properties into better properties. Leases in Tokyo are only two years in duration, and the tenant typically pays triple net rents. Property values are at levels not seen since the early 1980s. Sales are relatively frequent, but pricing is unpredictable, with American buyers paying 6-8% cap rates, and occasionally Japanese firms paying 3-5% cap rates. Two REITs recently did IPOs at roughly 6% cap rates, but their prices have fallen substantially since their IPOs.

Rents in Tokyo for quality properties continue to fall by 1-2% per year, as new construction continues to generate a modest supply/demand imbalance. This situation, and the general Japanese economic malaise, is expected to continue for the next several years.

You believe that after one year to completing the necessary improvements, you will be able to lease the property for an NOI of $8.4 million (after usual reserves). You can borrow $100 million, non-recourse, 5-year maturity, no points, 30-year amortization, for a fixed interest rate of 2%. To eliminate all currency risks on your investment (let’s not worry about how this is done) will cost $1.2 million per year. Your target rate of return is roughly 17% on your equity for a 5-year hold. What do think (and why)?

React: Debt always enhances the returns on equity because the borrowing rate is lower than the cash yield and properties go up in value.

Nestle can raise equity capital in its domestic equity market, or in the global equity markets.  Nestle's equity beta in the domestic market is 1.20.  In the global equity markets, which have a higher expected return, Nestle has a lower beta of 0.90. The risk-free rate in either the domestic or global securities market is 3.0%, while the domestic market has an expected market return of 11% and the global market has an expected return of 13.0%.

a)      Calculate Nestle's cost of Equity for both portfolio data sets

b)   If Nestle's debt/total capitalization ratio increases from 35% to 45%, given its cost of debt of 6.5% and its tax rate of 20%, calculate the WACC for each portfolio set before and after the change in capital structure.

React to each of the following questions.

A mortgage is more valuable as part of a CMBS offering than as a non-securitized mortgage.

Asset valuation and risk  Personal Finance Problem   Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $1,800 for each of the next 4 years and ​$8,710 in 5 years. Her research indicates that she must earn 4​% on​ low-risk assets, 8​% on​ average-risk assets, and 14​% on​ high-risk assets. a.  Determine what is the most Laura should pay for the asset if it is classified as​ (1) low-risk,​ (2) average-risk, and​ (3) high-risk. b.  Suppose Laura is unable to assess the risk of the asset and wants to be certain​ she's making a good deal. On the basis of your findings in part a​, what is the most she should​ pay? Why? c. All else being the​ same, what effect does increasing risk have on the value of an​ asset? Explain in light of your findings in part a.

David Palmer identified the following bonds for investment:

1. Bond A: A $1 million par, 10% annual coupon bond, which will mature on July 1, 2025.
2. Bond B: A $1 million par, 14% semi-annual coupon bond (interest will be paid on January 1 and July 1 each year), which will mature on July 1, 2031.
3. Bond C: A $1 million par, 10% quarterly coupon bond (interest will be paid on January 1, April 1, July 1, and October 1 each year), which will mature on July 1, 2026.

The three bonds were issued on July 1, 2011.

(Each Part is Independent)

2. David purchased the Bond C on January 1, 2014 when Bond C was priced to have a yield to maturity (EAR) of 10.3812891%. David subsequently sold Bond C on January 1, 2016 when it was priced to have a yield to maturity (EAR) of 12.550881%. Assume all interests received were reinvested to earn a rate of return of 3% per quarter (from another investment account), calculate the current yield, capital gain yield and the 2-year total rate of return (HPY) on investment for David on January 1, 2016. [Hint: Be careful with how many rounds of coupons has David received during the holding period and thus how much interests (coupons and reinvestment of coupons) he has earned in total during the 2-year holding period.]                                                                                                                           

Please provide steps thanks

Why do we have to use computers for algorithmic trading? what are the advantages and disadvantages of algorithmic trading? explain in detail

David Palmer identified the following bonds for investment:

1. Bond A: A $1 million par, 10% annual coupon bond, which will mature on July 1, 2025.
2. Bond B: A $1 million par, 14% semi-annual coupon bond (interest will be paid on January 1 and July 1 each year), which will mature on July 1, 2031.
3. Bond C: A $1 million par, 10% quarterly coupon bond (interest will be paid on January 1, April 1, July 1, and October 1 each year), which will mature on July 1, 2026.

The three bonds were issued on July 1, 2011.

(Each Part is Independent)

1. If Bond B is issued at face value and both Bond B and Bond A are having the same yield to maturity (EAR), calculate the market price of Bond A on July 1, 2011. [Note: Full mark would only be given to correct answer of which the values of those variables not provided in the question directly are derived.]                                                                       

2. David purchased the Bond C on January 1, 2014 when Bond C was priced to have a yield to maturity (EAR) of 10.3812891%. David subsequently sold Bond C on January 1, 2016 when it was priced to have a yield to maturity (EAR) of 12.550881%. Assume all interests received were reinvested to earn a rate of return of 3% per quarter (from another investment account), calculate the current yield, capital gain yield and the 2-year total rate of return (HPY) on investment for David on January 1, 2016. [Hint: Be careful with how many rounds of coupons has David received during the holding period and thus how much interests (coupons and reinvestment of coupons) he has earned in total during the 2-year holding period.]                                                                                                      

3. David purchased Bond B on a coupon payment day. Bond B is priced to have a yield to maturity (EAR) of 12.36% and its market value is $1,101,058.953 on the date of purchase. Find the remaining life until maturity (in terms of 6-month period or year) of Bond B.       

(Each of the following parts is independent.)

1. According to the Capital Asset Pricing theory, what return would be required by an investor whose portfolio is made up of 40% of the market portfolio (m) and 60% of Treasury bills (i.e. risk-free asset)?  Assume the risk-free rate is 3% and the market risk premium is 7%?

2. You are considering investing in the following two stocks. The risk-free rate is 7 percent and the market risk premium is 8 percent.

1. Compute the expected and required return (using CAPM) on each stock.
2. Which asset is worth investing? Support your answer with calculations.

3. Which pair of stocks used to form a 2-asset portfolio would have the greatest diversification effect for the portfolio? Briefly explain.

(d)   Explain the terms systematic risk and unsystematic risk and their importance in determining investment return.

Please provide stepping for all if possible, much appreciated.

Suppose your firm would like to earn 10% yearly return from the following two investment projects of equal risk.

(a)       If only one project can be accepted, based on the NPV method which one should it be?  Support your answer with calculations.

(b)       Suppose there is another four-year project (Project C) and its cash flows are as follows:

C₀ = –$8,000

             C₁ =   $2,000

               C₂ =   $2,500

               C₃ =   $2,000

               C₄ =   $4,000

(i)      Given the above cash flow patterns, at what required rate of return will Project C have the same NPV as Project B?  Briefly explain your answer.

(ii)     If Project C has the same risk as Project B, without calculations, explain which project will you pick?   

(iii)   If cash flow C₄ of Project C is unknown to you (while C₀ – C₃ are known and as above) and the project’s cost of capital is 10%, what amount of C₄ will make Project C worth accepting?

(iv)    If your firm’s investment policy (based on payback method) is such that it only accepts projects whose initial investment can be recouped within three years, will Project B and/or Project C be accepted?   

(c)       Based on the estimated cash flows of Project A, will you expect its internal rate of return (IRR) to be positive?  Briefly explain your answer WITHOUT calculations.

(d)       What kind of rate of return is the 10% interest stated in the question for Projects A and B?  How can it be used in making investment decisions (i.e. its role in investment decision making)?

Suppose your firm would like to earn 10% yearly return from the following two investment projects of equal risk.

(a)       If only one project can be accepted, based on the NPV method which one should it be?  Support your answer with calculations.                                         

(b)       Suppose there is another four-year project (Project C) and its cash flows are as follows:

C₀ = –$8,000

             C₁ =   $2,000

               C₂ =   $2,500

               C₃ =   $2,000

               C₄ =   $4,000

(i)      Given the above cash flow patterns, at what required rate of return will Project C have the same NPV as Project B?  Briefly explain your answer.                      

(ii)     If Project C has the same risk as Project B, without calculations, explain which project will you pick?                                                                 

(iii)   If cash flow C₄ of Project C is unknown to you (while C₀ – C₃ are known and as above) and the project’s cost of capital is 10%, what amount of C₄ will make Project C worth accepting?                                                                        

(iv)    If your firm’s investment policy (based on payback method) is such that it only accepts projects whose initial investment can be recouped within three years, will Project B and/or Project C be accepted?                                                     

(c)       Based on the estimated cash flows of Project A, will you expect its internal rate of return (IRR) to be positive?  Briefly explain your answer WITHOUT calculations.   

(d)       What kind of rate of return is the 10% interest stated in the question for Projects A and B?  How can it be used in making investment decisions (i.e. its role in investment decision making)?                                                                             

At year-end 2016, total assets for Arrington Inc. were $1.6 million and accounts payable were $440,000. Sales, which in 2016 were $2.7 million, are expected to increase by 30% in 2017. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to $460,000 in 2016, and retained earnings were $255,000. Arrington plans to sell new common stock in the amount of $55,000. The firm's profit margin on sales is 5%; 60% of earnings will be retained.

1. What were Arrington's total liabilities in 2016? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest cent.
   $
2. 
   
3. How much new long-term debt financing will be needed in 2017? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Do not round your intermediate calculations. Round your answer to the nearest cent. (Hint: AFN - New stock = New long-term debt.)
   $

Paladin Furnishings generated $4 million in sales during 2016, and its year-end total assets were $2.2 million. Also, at year-end 2016, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,000 of accrued liabilities. Looking ahead to 2017, the company estimates that its assets must increase by $0.55 for every $1.00 increase in sales. Paladin's profit margin is 4%, and its retention ratio is 40%. How large of a sales increase can the company achieve without having to raise funds externally? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Do not round intermediate calculations. Round your answer to the nearest cent.