Given the following spot rates and assuming the bonds and the time periods are semi-annual:

Time Spot Rate 1 3.00% 2 3.30% 3 3.50% 4 3.90% 5 4.40% 6 4.75% 7 4.95% 8 5.05% 9 5.15% 10 5.25% 11 5.40% 12 5.50% 13 5.60% 14 5.65% 15 5.75% 16 5.80%

1.What is the price of a 4% coupon bond maturing in 5 years?

2. What is the YTM on the above bond?

3. What is the implied forward rate on a two-year bond issue in 18 months?

4. What is the implied forward rate on a 1-year bond issued in 5 years?

5. Suppose a 3-year, 0-coupon bond for delivery in 2 years traded in the futures market. What should its price be?

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1) A. What are blocked funds? List and explain two of the three methods the authors list in this chapter for dealing with blocked funds.B. Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.

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Compute the NPV for Project M if the appropriate cost of capital
is 9 percent. **(Negative amount should be indicated by a
minus sign. Do not round intermediate calculations and round your
final answer to 2 decimal places.)**

Project M | ||||||

Time: | 0 | 1 | 2 | 3 | 4 | 5 |

Cash flow: | –$1,200 | $390 | $520 | $560 | $640 | $140 |

NPV?

Should it be accepted or rejected

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OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 7,000 bonds. Suppose the common shares sell for $17 per share, the preferred shares sell for $16 per share, and the bonds sell for 108 percent of par. What weight should you use for preferred stock in the computation of OMG’s WACC? (Round your answer to 2 decimal places.)

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XYZ is now evaluating the purchase of a new machine for $210,000 installed with no NWC change. They plan to sell the machine at the end of 3 years for $30,000. MACRS 3 year depreciation. With the more efficient machine, labor savings per year are expected to be $70,000, $94,000 and $76,000 respectively. 40% tax. The cost of capital for this project is 8.%. What is the IRR?

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Mojo Mining has a bond outstanding that sells for $1,058 and matures in 24 years. The bond pays semiannual coupons and has a coupon rate of 6.02 percent. The par value is $1,000. If the company's tax rate is 35 percent, what is the aftertax cost of debt? Multiple Choice 5.29% 3.63% 5.67% 3.40% 3.90%

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You want to buy a car, and a local bank will lend you $35,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 7% with interest paid monthly. What will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places.

Monthly loan payment: $

EAR: %

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how are cash flow projections determined? Are they accurate?

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In your own words define the following key terms:

Current Ratio

Days Cash on Hand (DCOH)

Days Receivables

Liquidity Ratios

Operating Margin

Profitability Ratios

Quick Ratio

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You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $6,100,000 and would be depreciated straight-line to zero over six years. Because of radiation contamination, it will actually be completely valueless in six years. You can lease it for $1,260,000 per year for six years. Assume that the tax rate is 22 percent. You can borrow at 7 percent before taxes. |

Calculate the NAL |

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Research, define, describe, and explain the above-mentioned (Minimum 250 words answer for each questions)

1. What is capital budgeting?

2. What is an operating budget?

3. Explain capital structure.

4. Explain what financing instruments are and discuss options, futures, derivatives and securities valuation.

5. Explain what the money market is and market efficiency

6. List three different types of financial ratios and explain them

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Interest rates on 4-year Treasury securities are currently 6.3%, while 6-year Treasury securities yield 7.15%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.,,,

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Louie’s Leisure Products is considering a project which will require the purchase of $1.5 million of new equipment. Shipping and installation will be an additional $300,000. For tax purposes, the equipment will be depreciated straight-line to a salvage value of $200,000 over the five-year life of the project. Louie’s expects to sell the equipment at the end of five years for $100,000. Annual sales from this project are estimated at $1.2 million with annual operating costs estimated at $500,000. Net working capital is equal to $100,000, and all of the net working capital will be recouped at the end of the project. The firm desires a minimal 14% rate of return on this project. The tax rate is 34%. What is the NPV of the project?

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a. A bond that has $1 comma 000 par value (face value) and a
contract or coupon interest rate of 6 percent. A new issue would
have a floatation cost of 8 percent of the $1 comma 150 market
value. The bonds mature in 13 years. The firm's average tax rate
is 30 percent and its marginal tax rate is 33 percent.

b. A new common stock issue that paid a $1.80 dividend last year.
The par value of the stock is $15, and earnings per share have
grown at a rate of 11 percent per year. This growth rate is
expected to continue into the foreseeable future. The company
maintains a constant dividend-earnings ratio of 30 percent. The
price of this stock is now $29, but 7 percent flotation costs are
anticipated.

c. Internal common equity when the current market price of the
common stock is $45. The expected dividend this coming year should
be $3.20, increasing thereafter at an annual growth rate of 7
percent. The corporation's tax rate is 33 percent.

d. A preferred stock paying a dividend of 9 percent on a $120 par
value. If a new issue is offered, flotation costs will be 12
percent of the current price of $179.

e. A bond selling to yield 13 percent after flotation costs, but
before adjusting for the marginal corporate tax rate of 33 percent.
In other words, 13 percent is the rate that equates the net
proceeds from the bond with the present value of the future cash
flows (principal and interest).

a. What is the firm's after-tax cost of debt on the bond?

b. What is the cost of external common equity?

c. What is the cost of internal common equity?

d. What is the cost of capital for the preferred stock?

e. What is the after-tax cost of debt on the bond?

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Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the bank's investments department, he's well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, Elliot intends to use $ 1 million of his inheritance to purchase 4 U.S. Treasury bonds: 1. An 8.66 %, 13-year bond that's priced at $ 1,096.15 to yield 7.49 %. 2. A 7.776 %, 15-year bond that's priced at $ 1016.49 to yield 7.59 %. 3. A 20-year stripped Treasury (zero coupon) that's priced at $ 198.52 to yield 8.25 %. 4. A 24-year, 7.41 % bond that's priced at $ 956.93 to yield 7.81 %. Note that these bonds are semiannual compounding bonds. a. Find the duration and the modified duration of each bond. b. Find the duration of the whole bond portfolio if Elliot puts $ 250,000 into each of the 4 U.S. Treasury bonds. c. Find the duration of the portfolio if Elliot puts $ 370,000 each into bonds 1 and 3 and $ 130,000 each into bonds 2 and 4. d. Which portfolio-b or c-should Elliot select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From which portfolio does he stand to make more in annual interest income? Which portfolio would you recommend, and why?

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