Walmart's bonds currently sell for $1,250. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM; it is possible to get a negative answer.)

You are considering the following two mutually exclusive projects. If the cost of capital for both projects is 7%, which statement concerning capital-budgeting rules listed will be correct in this situation?

Time

Year

0

Year

1

Year

2

Year

3

Project

A

-

$567

$300

$400

$300

Project

B

-

$296

$500

$100

$50

a)

Both NPV and IRR will choose the correct

project(s).

b)

Neither NPV nor IRR will choose the correct project(s).

c)

NPV will choose the correct project(s), IRR will not.

d)

IRR will choose the correct project(s), NPV will not.

Consider the following information:

State Probability Stock A Stock B Stock C

Boom 0.32 0.07 0.04 0.08

Bust 0.68 0.11 0.03 0.12

What is the expected return of a portfolio that has invested $3,235 in Stock A, $15,297 in Stock B, and   $6,349 in Stock C? (Hint: calculate weights of each stock first). Enter the answer with 4 decimals (e.g. 0.1234).

This is a challenging question. Please allocate time wisely.) Cipro Milda is planning a college fund for her child. When the child joins college in 15 years, the tuition payment for the first semester is expected to be $21,000. Thereafter, tuition payments will be due every six months for the following semester. These payments are expected to increase at an annual inflation rate of 6 percent. The child will graduate in eight semesters, so she will have to make a total of eight tuition payments. If she can earn 10 percent annual rate compounded monthly, how much will she have to deposit monthly in the college fund so that the balance in the fund is zero when the last tuition payment is made? She plans to continue making these deposits until the last tuition bill is paid.

The CEO of a growing cyber-security firm was awarded 25,000 stock options as part of her pay package. She can exercise the options -turn them into stock- in two years. The company’s stock price was $35.00 per share at the time of the stock option grant. Shortly after the option award was received, she went to an investment banking firm and bought put options at a strike price of $35.00. The option expires in two years.

(i) What does the put option do for the CEO? Carefully explain why your stated result occurs.

(ii) Stock options and stock ownership are included in compensation packages to create incentives for CEOs to create value for shareholders. Does this put option purchase change those incentives? If so, how?

(iii) If you were a shareholder in this company, would you want to be informed about these types of transactions by the CEO?

The main objective of a supply chain is to maximize the overall value created. Briefly describe the importance to

implement such objective across the supply chain rather than to individual member of the supply chain.

Kahn Inc. has a target capital structure of 40% common equity and 60% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 12%, a before-tax cost of debt of 8%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $2, and the current stock price is $35.

What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. %

If the firm's net income is expected to be $1.4 billion, what portion of its net income is the firm expected to pay out as dividends? Do not round intermediate calculations. Round your answer to two decimal places. (Hint: Refer to Equation below.) Growth rate = (1 - Payout ratio)ROE

As a manager of UAA Company your task is to evaluate the investment potential of two mutually exclusive projects using the data below.

Market return (Rm): 10%

Risk-free rate of return (Rf): 2.5%

UAA stock beta: 1.60

1. Assume that UAA is an all equity firm. Use the Capital Asset Pricing Model (CAPM) to determine the Required Rate of Return for this firm?
2. Calculate the IRR for each project using the IRR function in Excel?
3. Calculate the NPV for each project using the NPV function in Excel?
4. Which, if either, of the projects should the company accept? Explain why?

Question 6:
XYZ Construction is considering two projects to develop. The expected cash inflows are
as follows :
Project M Project N
Year 1 10,000 25,000
Year 2 15,000 25,000
Year 3 20,000 25,000
Year 4 25,000 25,000
Year 5 30,000 25,000
Each Project requires an investment of $100,000. A rate of 10% has been selected for the NPV
Analysis.
Required:
a) Calculate the NPV and the Profitability Index and suggest which project should be
recommended based on each method.
b) Explain what the key decisions are a Finance Manager has to take in an
Organization with suitable examples.

Professor,

In trying to apply my knowledge in the real world, I am trying to create a realistic retirement schedule. However, I am running into difficulties using both a financial calculator as well as our equations from class in doing this.

I am trying to do the following: plan a retirement schedule between the ages of 22 and 68, in which I would deposit 25% of my income each year. The income starts at 80,000 with an annual growth rate of 5% and, to be realistic, assuming an interest rate of 2.5%. I will assume for simplicity that I receive my first salary ($80,000) when I turn 22, and my last salary when I turn 68. As soon as I receive a salary, I will save 25% of it.

I would like to know (1) how much I will have in my retirement account when I turn 68, immediately after the last deposit, and (2) what single deposit made on my 22^nd birthday would give the same account balance when I turn 68.

However, this raises issues, as if I try to use the equation for the present value of a growing annuity with a 5% growth rate and 2.5% discount rate, r-g will yield a negative number. Also, I could not find online how to do this on my HP 10bII+ financial calculator and I don't want to manually enter 47 payments.

Do you know how I could overcome this obstacle?

All the best,

Jimmy

Unfortunately, I forgot to reply Jimmy’s email and I would like to get back to him as soon as possible. I want to answer Jimmy’s questions using the formulas we learned in class (not the calculator or Excel). Can you help me draft a response? You may use the calculator or Excel for calculations, but I want to send Jimmy the formula solution.

What is the future value of an annuity due that pays $1000 for 5 years if the appropriate discount rate is five percent? What’s the present value of this annuity due?

please show all work and steps not with excel

Faleye Consulting is deciding which of two computer systems to purchase. It can purchase state-of-the-art equipment (System A) for $25,000, which will generate cash flows of $10,000 at the end of each of the next 6 years. Alternatively, the company can spend $14,000 for equipment that can be used for 3 years and will generate cash flows of $10,000 at the end of each year (System B). If the company’s WACC is 5% and both “projects” can be repeated indefinitely, which system should be chosen, and what is its EAA? Do not round intermediate calculations. Round your answer to the nearest cent.

Choose Project ___ , whose EAA = $____

Carlsbad Corporation's sales are expected to increase from $5 million in 2019 to $6 million in 2020, or by 20%. Its assets totaled $4 million at the end of 2019. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2019, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 5%.

1. Assume that the company pays no dividends. Use the AFN equation to forecast the additional funds Carlsbad will need for the coming year. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar.
   $  
2. 
   
3. Why is this AFN different from the one when the company pays dividends?
   
   1. Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed.
   2. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of additional funds needed.
   3. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of assets needed.
   4. Under this scenario the company would have a higher level of spontaneous liabilities, which would reduce the amount of additional funds needed.
   5. Under this scenario the company would have a lower level of retained earnings, which would increase the amount of additional funds needed.
   
   

Calculate the Macaulay duration of an 8%, $1,000 par bond that matures in three years if the bond's YTM is 10% and interest is paid semiannually. You may use Appendix C to answer the questions.

Calculate this bond's modified duration. Do not round intermediate calculations. Round your answer to two decimal places.

  years

Assuming the bond's YTM goes from 10% to 8.5%, calculate an estimate of the price change. Do not round intermediate calculations. Round your answer to three decimal places. Use a minus sign to enter negative value, if any.

  %

Question 5:
The Kay Company has the following Capital structure as at 31st March 2019.
Based on Book Value Based on Market Value % Costs
Debentures 300,000 330,000 7
Preference 100,000 110,000 9
Equity 1,500,000 1,700,000 15
Debt 200,000 180,000 10
Required:
Determine the Weighted Average cost of capital using:
a) Book Value weights
b) Market Value weights
c) What are the factors affecting Cost of Capital?