Questions
if I were to tell you that a stock hs a significantly positive alpha but and...

if I were to tell you that a stock hs a significantly positive alpha but and extremely high beta, is this still stock a good one to own ? why or why not?

In: Finance

You are shown the following data. If the correlation coefficient between the combined portfolio of A+B...

  1. You are shown the following data. If the correlation coefficient between the combined portfolio of A+B and C is 0.2, what would happen to the overall volatility of the new portfolio if we invested 50% in A+B and the remaining 50% in C? You could potentially avoid computations.

Stocks

Volatility

%

Portfolio invested

Average Return

A and B

27

50

15

C

32

50

18

  1. Volatility will lie somewhere between 32% and 40%.
  2. Volatility will lie somewhere between 27% and 32%.
  3. Volatility will be below 27%.
  4. Volatility will be above 40%.
  5. Volatility will become zero.

In: Finance

Explain how agency conflicts arise in an organization. What are the appropriate solutions to reduce agency...

Explain how agency conflicts arise in an organization. What are the appropriate solutions to reduce agency costs? Cite appropriate examples from Saudi Firms. 

In: Finance

Angie Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 30 percent.  If...

Angie Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 30 percent.  If the company purchases the equipment for $2,000,000 it will depreciate it over 4 years, using straight-line depreciation. No salvage value is expected.  If the company enters into a 4-year lease, the lease payment is $600,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 10 percent.  

Calculate the cost of purchasing the equipment.

In: Finance

Assume that the United States invests heavily in government and corporate securities of South Korea (hereafter,...

Assume that the United States invests heavily in government and corporate securities of South Korea (hereafter, ‘Korea’). In addition, residents of Korea invest heavily in the United States. Approximately $20 billion worth of investment transactions occur between these two countries each year. The total dollar value of trade transactions per year is about $15 million. This information is expected to also hold in the future. Explain how each of the following conditions will affect the value of Korean currency, won, holding other things equal. a) U.S. inflation has suddenly increased substantially, while Korean inflation remains low. b)U.S. interest rates have increased substantially, while Korean interest rates remain low. Investors of both countries are attracted to high interest rates. c) The U.S. income level increased substantially, while Korean income level has remained unchanged d) The U.S. is expected to impose a small tariff on goods imported from Korea. e) Combine all expected impacts to develop an overall forecast.

In: Finance

The Marcus Company is evaluating the proposed acquisition of a new  machine. The machine's base price is...

The Marcus Company is evaluating the proposed acquisition of a new  machine. The machine's base price is $350,000, and it would cost another $125,000 to modify it for special use.  The machine falls into the MACRS 3-year class, and it would be sold after 4 years for $40,000.  The machine would require an increase in net working capital of $20,000. The machine would have no effect on revenues, but it is expected to save the firm $170,000 per year for 4 years in before-tax operating costs. .  The company's marginal tax rate is 30 percent and its cost of capital is 10 percent.

Calculate NPV. Should the machinery be purchased? Why or why not?

In: Finance

Calculation of individual costs and WACC: Dillon Labs has asked its financial manager to measure the...

Calculation of individual costs and WACC: Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights:50​% long-term debt, 20% preferred​ stock, and 30% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 28​%.

Debt: The firm can sell for ​$1010 a 12​-year, ​$1000​-par-value bond paying annual interest at a 8.00​% coupon rate. A flotation cost of 2​% of the par value is required.

Preferred stock: 8.00% ​(annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of ​$2 per share must be paid to the underwriters.

Common stock: The​ firm's common stock is currently selling for ​$60 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from $2.70 ten years ago to the $4.00 dividend​ payment, Upper D 0, that the company just recently made. If the company wants to issue new new common​ stock, it will sell them ​$3.50below the current market price to attract​ investors, and the company will pay ​$2.50 per share in flotation costs.  

a.  Calculate the​ after-tax cost of debt.

b.  Calculate the cost of preferred stock.

c.  Calculate the cost of common stock​ (both retained earnings and new common​ stock).

d.  Calculate the WACC for Dillon Labs.

In: Finance

Shown below are exchange rates for several currencies.   US$ per 1 euro US$ per 1 franc...

Shown below are exchange rates for several currencies.  

US$ per 1 euro US$ per 1 franc Mexican peso per US$1
Spot rate 1.21 1.03 19.68
30-day forward rate 1.19 1.06 20.15
60-day forward rate 1.15 1.07 21.28

A U.S. company purchases goods from several foreign companies with payment due in euros, francs, and pesos.  Would the company be better off paying any of the suppliers now or should it wait 60 days? Why?

In: Finance

Angie Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 30 percent.  If...

Angie Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 30 percent.  If the company purchases the equipment for $2,000,000 it will depreciate it over 4 years, using straight-line depreciation. No salvage value is expected.  If the company enters into a 4-year lease, the lease payment is $600,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 10 percent.  

Calculate the cost of leasing the equipment.

In: Finance

You are scheduled to receive annual payments of $8,600 for each of the next 27 years....

You are scheduled to receive annual payments of $8,600 for each of the next 27 years. The discount rate is 7.0 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

In: Finance

Greentop Inc. plans on increasing its annual dividend by 15 percent a year for the next...

Greentop Inc. plans on increasing its annual dividend by 15 percent a year for the next four years and then decreasing the growth rate to 2.5 percent per year. The company just paid its annual dividend in the amount of $.20 per share. The required rate of return is 17.4 percent.

(a) What is the current value of one share of this stock?

(b) What is the expected stock price of this stock for next year?

(c) What is the expected stock price of this stock in 10 years?

I need explanation. thanks!

In: Finance

Some recent financial statements for Gutfeld Golf, Inc., follow. GUTFELD GOLF, INC. Balance Sheets as of...

Some recent financial statements for Gutfeld Golf, Inc., follow.
GUTFELD GOLF, INC.
Balance Sheets as of December 31, 2016 and 2017
  2016   2017   2016   2017
Assets Liabilities and Owners’ Equity
  Current assets Current liabilities
     Cash $ 6,407 $ 9,410    Accounts payable $ 3,413 $ 3,846
     Accounts receivable 6,702 8,149    Notes payable 2,768 3,416
     Inventory 13,757 15,930    Other 138 165
        Total $ 26,866 $ 33,489       Total $ 6,319 $ 7,427
Long-term debt $ 25,200 $ 27,366
Owners’ equity
   Common stock
      and paid-in surplus $ 38,000 $ 38,000
  Fixed assets    Accumulated retained earnings 16,035 37,506
      Net plant and equipment $ 58,688 $ 76,810        Total $ 54,035 $ 75,506
  Total assets $ 85,554 $ 110,299 Total liabilities and owners’ equity $ 85,554 $ 110,299
GUTFELD GOLF, INC.
2017 Income Statement
  Sales $ 202,527
  Cost of goods sold 138,383
  Depreciation 5,910
  EBIT $ 58,234
  Interest paid 1,617
  
  Taxable income $ 56,617
  Taxes 22,647
  
  Net income $ 33,970
  
  Dividends $ 12,499
  Retained earnings 21,471
Required:

Find the following financial ratios for Gutfeld Golf (use year-end figures rather than average values where appropriate): (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

2016 2017
  Short-term solvency ratios
     a. Current ratio times times
     b. Quick ratio times times
     c. Cash ratio times times
  Asset utilization ratios
     d. Total asset turnover times
     e. Inventory turnover times
     f. Receivables turnover times
  Long-term solvency ratios
     g. Total debt ratio times
     h. Debt-equity ratio times
     i. Equity multiplier times
     j. Times interest earned ratio times
     k. Cash coverage ratio times
  Profitability ratios
     l. Profit margin %
     m. Return on assets %
     n. Return on equity %

In: Finance

Assume Nike is exposed to a currency portfolio weighted 50 percent in Canadian dollars and 50...

Assume Nike is exposed to a currency portfolio weighted 50 percent in Canadian dollars and 50 percent in Mexican pesos. Nike estimates the standard deviation of quarterly percentage changes to be 4 percent for the Canadian dollar and 6 percent for the Mexican peso. Also assume that Nike estimates a correlation coefficient of 0.2 between these two currencies.
a) Calculate the portfolio’s standard deviation.
b) Assuming i) normal distribution of the quarterly percentage changes of each currency (and so the same of the portfolio as well), and ii) an expected percentage change of -1 percent for the currency portfolio, calculate the maximum one-quarter loss of the currency portfolio based on a 95 percent confidence level.

In: Finance

Currently the level of the S&P 500 Index is 1300, and the yield on the 90-day...

Currently the level of the S&P 500 Index is 1300, and the yield on the 90-day treasury bill is 2.75%. The following table lists the forecasts of an economist for the S&P 500 in the coming year.

Economic Environment

Probability of Occurance

Expected return of the S&P

Above Average

30%

22%

Average

45%

8%

Poor

25%

-35%

Calculate the expected return and standard deviation for the S&P 500. Construct the Security Market Line graph (from your findings) and show what the market risk premium is. Label your graph to receive full credit.

What would happen to the expected return on stocks if investors perceived an increase in the volatility of stocks? Why?

In: Finance

ATT is considering a project. The project requires to purchase an equipment with a cost of...

ATT is considering a project. The project requires to purchase an equipment with a cost of $1.55 million. The equipment will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project it will be sold for a market value of $240,000. The project will not change sales but will reduce operating costs by $399,000 per year. The project also requires an initial investment of $52,000 in net working capital, which will be recouped when the project ends. The tax rate is 34 percent.

(1) What is the cash flow of the project in year 0 (or at the beginning of the project)?

(2) What is the cash flow of the project in each year from year1 to year 8?

(3) What is the cash flow of the project in year 9 (or the ending year)? [hint: there are 3 cash flow items, for example after-tax salvage value]

(4) What is the project's NPV if the required return is 11.5 percent? [hint: the answer for NPV value is one of the following choices:] A. $215,433 B. $276,945 C. $268,011 D. $225,225 E. $257,703

In: Finance