Six-month T-bills have a nominal rate of 2%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 1.40%. In the spot exchange market, 1 yen equals $0.008. If interest rate parity holds, what is the 6-month forward exchange rate? Do not round intermediate calculations. Round your answer to six decimal places.

_________________$

Larissa has decided to expand the company’s operations. She has asked Dan to enlist an underwriter to help sell $50 million in new 20-year bonds to finance new construction. Dan has entered into discussions with Kim McKenzie, an underwriter from the firm of Crowe & Mallard, about which bond features East Coast Yachts should consider and also what coupon rate the issue will likely have. Although Dan is aware of bond features, he is uncertain as to the costs and benefits of some of them, so he isn’t clear on how each feature would affect the coupon rate of the bond issue.

1. You are Kim’s assistant, and she has asked you to prepare a memo to Dan describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages of each feature.

The security of the bond, that is, whether or not the bond has collateral.

The seniority of the bond.

The presence of a sinking fund.

A call provision with specified call dates and call prices.

A deferred call accompanying the above call provision.

A make-whole call provision.

Any positive covenants. Also, discuss several possible positive covenants East Coast Yachts might consider.

Any negative covenants. Also, discuss several possible negative covenants East Coast Yachts might consider.

A conversion feature (note that East Coast Yachts is not a publicly traded company).

A floating rate coupon.

A firm raises capital by selling $20,000 worth of debt with flotation costs equal to 3​% of its par value. If the debt matures in 5 years and has an annual coupon interest rate of 7​%, what is the​ bond's YTM?

The price of a non-dividend paying stock is $15 and the price of a six-month European call option on the stock with a strike price of $23 is $2. The risk-free rate is 4% per annum. What is the price of a six-month European put option with a strike price of $23?

NPV: Your division is considering two projects with the following cash flows (in millions):

                      0   1      2     3

Project A - $16   $7    $9 $10

Project B - $26   $14 $20 $11

a. What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.

Project A $ _______ million

Project B $ _______ million

What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be inidcated by a minus sign.

Project A $ _______ million

Project B $ _______million

What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be inidcated by a minus sign.

Project A $ _______ million

Project B $ _______ million

b. What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places.

Project A ________%

Project B ________%

What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places.

Project A _______%

Project B _______%

What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places.

Project A _______%

Project B _______%

c. If the WACC were 5% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 48.57%.) _____________________

If the WACC were 10% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 48.57%.) ________________________

If the WACC were 15% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 48.57%.) ___________________

H. Cochran Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. The project is estimated to generate $1,715,000 in annual sales, with costs of $624,000. The project requires an initial investment in net working capital of $260,000, and the fixed asset will have a market value of $195,000 at the end of the project.
  
a.   If the tax rate is 21 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to two decimal places, e.g., 32.16.)
b.   If the required return is 9 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to two decimal places, e.g., 32.16.)

The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $15 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $4.8 million with a 0.2 probability, $1.5 million with a 0.5 probability, and $0.8 million with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations.

~Debt/Capital ratio is 0.

~Debt/Capital ratio is 10%, interest rate is 9%.

~Debt/Capital ratio is 50%, interest rate is 11%.

~Debt/Capital ratio is 60%, interest rate is 14%.

1.    Valuation of a Stock Through the Gordon Growth Model (8 pts.):  Please use the following information and the Gordon Growth Model of Stock Valuation to calculate the most recent dividend paid by WXZ corporation. (Make sure you convert percentage figures into decimals before using the formula) and please show your work clearly.

Current stock price of a share of WXZ Corporation: $54.25

Expected constant growth rate of dividends: 8.5%

Investor’s required return on investment equity: 12.5%

2.   The Net Asset Value of a Mutual Fund (10 pts.):  Suppose that 12 months ago, an investor purchased a given number of shares of a Mutual fund at the then fund’s Net Asset Value of $4.00. Assume that today (12 months later) this investor sells those shares at today’s NAV and that the yield or rate of return on this individual’s investment is - 4.5%, yes, negative 4.5%.   Suppose, furthermore, that the Fund’s Balance Sheet as of today shows the following information, in no particular order:

Cash…………………………………………………………………………..$24,790

Accrued fees and other liabilities…………………………….. $87,458

Current market value of holdings of stocks……..……$5,749,612

Current market value of holdings of bonds…………. $2,579,536

Please calculate this fund’s NAV today, and the number of this fund’s shares outstanding as of today.  Please show your work clearly.

3.   Hedge Funds (6 pts.):  What key characteristics and regulatory constraints distinguish Hedge Funds from other types of Mutual Funds?

You are given the following information for Smashville, Inc.

During the year, Smashville, Inc., had 17,000 shares of stock outstanding and depreciation expense of $17,000. At the end of the year, Smashville stock sold for $54 per share. Calculate the price-book ratio, price-earnings ratio, and the price-cash flow ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Price Book Ratio_____

Price Earning ______

Price cash flow _____

outline and carefully analyze Porter's generic determinants of strategy?

Edna Recording​ Studios, Inc., reported earnings available to common stock of $5,000,000 last year. From those​ earnings, the company paid a dividend of ​$1.33 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 45% ​debt, 20​% preferred​ stock, and 35​% common stock. It is taxed at a rate of 26​%.

a.  If the market price of the common stock is $42 and dividends are expected to grow at a rate of 6% per year for the foreseeable​ future, what is the​ company's cost of retained earnings financing​?

b.  If underpricing and flotation costs on new shares of common stock amount to $8 per​ share, what is the​company's cost of new common stock

financing​?

c.  The company can issue $2.15 dividend preferred stock for a market price of ​$27

per share. Flotation costs would amount to $2 per share. What is the cost of preferred stock financing​?

d.  The company can issue $1,000​-par-value, 10% coupon, 15​-year bonds that can be sold for $1,170 each. Flotation costs would amount to $30

per bond. Use the estimation formula to figure the approximate​after-tax cost of debt​ financing?

e.  What is the retained earnings and cost of new common stock WACC​?

You decide to sell short 50 shares of Ford at $10 per share. The initial margin requirement is 50%. The maintenance margin is 40%. (Please show the work/equations!!! Thanks!)

1) How much cash (X) must we put into the brokerage account?

2) How high can the stock price be before a margin call?

3) Suppose stock price immediately declines to P = $9. What is the rate of return for this investor?

4) Suppose stock price immediately rises to P = $11. What is the rate of return for this investor?

You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97.

What are the Sharpe and Treynor ratios for the fund? (Do not round intermediate calculations. Round your answers to 4 decimal places.)

Sharpe ratio _____

Treynor ratio _____

You are given the following information for Smashville, Inc.  

During the year, Smashville, Inc., had 20,000 shares of stock outstanding and depreciation expense of $15,000. Calculate the book value per share, earnings per share, and cash flow per share. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Price Book Ratio_____

Price Earning ______

Price cash flow _____