Assume you have invested $55,000 in the stock of ABC Industries and $20,000 in the stock of Southern Enterprises. Their prospective returns are listed below:

1. Determine the expected return for ABC Industries and Southern Enterprises.
2. Determine the expected return of the portfolio.
3. Determine the standard deviation of the portfolio.
4. In general, what is the correlation of the two stocks (i.e, positive or negative)? What is their general correlation with the state of the economy?

A recent edition of The Wall Street Journal reported interest rates of 3.10 percent, 3.45 percent, 3.76 percent, and 3.02 percent for three-year, four-year, five-year, and six-year Treasury notes, respectively. According to the unbiased expectations theory of the term structure of interest rates, what are the expected one-year rates during years 4, 5, and 6?

Why do we use the overall cost of capital for investment decisions even when only one source of capital will be used (e.g., debt)? Suppose a firm estimates its weighted average cost of capital (WACC) to be 10%. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be “reasonable” costs of capital for average, high and low-risk projects?

(150 words at least)

#23 ch.7: semi-annual bond ; coupon = 7.2; matures=14 yrs; Last Price=108.96What is YTM, CY and effective Yield.

Consider a project to supply Detroit with 40,000 tons of machine screws annually for automobile production. You will need an initial $4,800,000 investment in threading equipment to get the project started; the project will last for 3 years. The accounting department estimates that annual fixed costs will be $850,000 and that variable costs should be $220 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 3-year project life. It also estimates a salvage value of $460,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $330 per ton. The engineering department estimates you will need an initial net working capital investment of $480,000. You require a return of 13 percent and face a marginal tax rate of 25 percent on this project.

a-1 What is the estimated OCF for this project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

a-2 What is the estimated NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

b. Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ±15 percent; the marketing department’s price estimate is accurate only to within ±10 percent; and the engineering department’s net working capital estimate is accurate only to within ±5 percent. What is the worst-case NPV for this project? The best-case NPV? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Discuss the factors that affect the WACC. Also discuss how these factors may differ somewhat from country to country.

(at least 150 words )

Please find the answer for the Payback Period, Discounted Payback, NPV, IRR for Project One. Explain how to get the answer.

McGilla Golf is evaluating a new golf club. The clubs will sell for $970 per set and have a variable cost of $435 per set. The company has spent $150,000 for a marketing study that determined the company will sell 49,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,200 sets of its high-priced clubs. The high-priced clubs sell at $1,470 and have variable costs of $600. The company also will increase sales of its cheap clubs by 11,800 sets. The cheap clubs sell for $435 and have variable costs of $165 per set. The fixed costs each year will be $9,500,000. The company has also spent $1,100,000 on research and development for the new clubs. The plant and equipment required will cost $30,100,000 and will be depreciated on a straight-line basis to a zero salvage value. The new clubs also will also require an increase in net working capital of $2,440,000 that will be returned at the end of the project. The tax rate is 24 percent and the cost of capital is 12 percent. What is the senstivity of the NPV to changes in the price and quantity sold of the new clubs? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

M.V.P. Games, Inc., has hired you to perform a feasibility study of a new video game that requires an initial investment of $6.7 million. The company expects a total annual operating cash flow of $1.27 million for the next 9 years. The relevant discount rate is 11 percent. Cash flows occur at year-end.

a. What is the NPV of the new video game? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

b. After one year, the estimate of remaining annual cash flows will be revised either upward to $2.17 million or downward to $282,000. Each revision has an equal probability of occurring. At that time, the video game project can be sold for $2.57 million. What is the revised NPV given that the firm can abandon the project after one year? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

CAINE Systems, Inc. is planning to issue two types of bonds in order to raise capital for it's new artificial intelligence software platform:

3,000 bonds at $ 1,000 (par value) paying 10% semiannually for 25 years (non-callable) will raise the first $ 3 Million needed, and second round with OID ( Original Issue Discount ) bonds (same par value, same 25 year maturity) to raise an additional $ 3 Million.

CAINE Systems needs to raise a full $ 6 Million or it will have to layoff employees.

The OID bonds will be sold, but these bonds will have a semiannual coupon of only 6.25%.

In order to attract investors the OID bonds must be offered at below par in order to provide investors with an equal effective yield to maturity as the higher dividend paying par bonds. How many OID bonds must the firm issue to raise $3,000,000? You can ignore flotation costs, and should round your final answer up to a whole number of bonds.

Please find the answer for the Payback Period, Discounted Payback, NPV, IRR for Project One. Explain how to get the answer.

Jaime Corporation reported net income of $60 million for last year. Depreciation expense totaled $20 million and capital expenditures came to $5 million. Free cash flow is expected to grow at a rate of 6% for the foreseeable future. Lambert faces a 30 % tax rate and has a 0.40 debt to equity ratio with $200 million (market value) in debt outstanding. Lambert's equity beta is 1.20, the risk free rate is currently 4% and the market risk premium is estimated to be 7%. What is the current total value of Jaime Corporation's equity (in millions)? Pick the closest answer.

a) $1742.47

b) $1542.47

c) $935.10

d) $951.26

e) $735.10