1. Full House Co. has the following information:

-Beta=1.2, Market Risk Premium= 7%, Risk free rate = 3%

-A current price of common stock of $60/share, with 100,000 shares outstanding

-A preferred dividend of $10 with a current price of preferred stock of $100, and 10,000 shares outstanding

-5000 outstanding bonds with 20 years to maturity, paying a 5% coupon, and a current price of $1150 and 6000 outstanding bonds with 10 years to maturity, paying a 4%, and a current price of $1041.67

-Full House’s Tax Rate is 21%

Find the WACC for Full House Inc.

**please post STEP BY STEP instructions

Your firm has EUR 100 million of outstanding equity. It has also issued a 10-year bond in US markets with total face value equal to USD 100 million, which pays a 4% annual coupon and was recently quoted at a price of 100. Your marginal tax rate is 25%.

You observe the market information below.

EUR risk-free rate 2%
Your firm's beta 1.25
Market risk premium 4%
EUR expected inflation 1%
USD expected inflation 3%
Exchange rate 1.10 USD per EUR

Your firm’s weighted average cost of capital (in USD terms) is closest to:

Problem 4

Able sells three products that use the same machine and there is a scarcity of hours available on the machines. Only 50,000 hours are available and total fixed expenses are $1,100,000. Below is information regarding the products:

                                                             A                      B                         C

Sales Price                                     $200                 $180                  $170

Variable Expense                           100                      90                    100

Contribution Margin                     100                      90                      70

Machine Hours/Unit                        4                         5                        2

Demand                                         4,000                  5,000               8,000

Required: Determine the order the products should be made in and how much should be made and what the overall operating income will be.

What should we do and how much income will be earned if the optimum mix is used?

A distributor of computer parts purchases a specific component from a supplier in lots of 1000 units. The cost of purchasing a lot is $30,000. The supplier is known to supply imperfect lots. In other words, a lot received by the distributor may contain defective units. Historical data suggest that the proportion of defective units in a lot supplied by this supplier follows the following probability distribution:

The distributor inspects the entire lot for defective units before selling the units to PC repair shops at a price of $45 per unit. The inspection process is error-proof so all defective units in a lot are detected and replaced by the distributor. It costs $20 for the distributor to replace a defective unit. The distributor has recently learned that the supplier offers a guarantee policy through which the supplier will assume the cost of replacing defective units in excess of the first 100 faulty units found in a given lot at no cost. [This means that the first 100 defective units found in a lot are replaced by the distributor for $20 per unit; however, all additional defective unit (if any) found in a lot are replaced by the supplier at no cost to the distributor.] This guarantee policy may be purchased by the distributor prior to the receipt of a given lot at a cost of $1000 per lot. The distributor wants to determine whether it is worthwhile to purchase the supplier’s guarantee policy.

QUESTION TO BE ANSWERED:

Perform sensitivity analysis: Perform a one-way sensitivity analysis using PrecisionTree ® on the optimal decision by letting the cost of replacing a defective unit vary from $10 to $30 in 11 steps and the cost of purchasing the supplier's guarantee policy vary from $400 to $1600 in 7 steps. Comment on your findings.

The following transactions occurred at the Daisy King Ice Cream Company.

1. Started business by issuing 10,000 shares of common stock for $37,000.
2. Signed a franchise agreement to pay royalties of 5% of sales.
3. Leased a building for three years at $670 per month and paid six months' rent in advance.
4. Purchased equipment for $7,100, paying $4,000 down and signing a two-year, 8% note for the balance.
5. Purchased $3,500 of supplies on account.
6. Recorded cash sales of $2,500 for the first week.
7. Paid weekly salaries and wages, $1,170.
8. Paid for supplies purchased in item (5).
9. Paid royalties due on first week's sales.
10. Recorded depreciation on equipment, $100.

Required:
Prepare journal entries to record each of the transactions listed above.

• 1

  Started business by issuing 10,000 shares of common stock for $37,000.

• 2

  Signed a franchise agreement to pay royalties of 5% of sales.

• 3

  Leased a building for three years at $670 per month and paid six months' rent in advance.

• 4

  Purchased equipment for $7,100, paying $4,000 down and signing a two-year, 8% note for the balance.

• 5

  Purchased $3,500 of supplies on account.

• 6

  Recorded cash sales of $2,500 for the first week.

• 7

  Paid weekly salaries and wages, $1,170.

• 8

  Paid for supplies purchased in item (5).

• 9

  Paid royalties due on first week's sales.

• 10

  Recorded depreciation on equipment, $100.

1a) Suppose your company is faced with the following demand curve: Q^D = 600 – 100 P. The price elasticity of demand, E^D , at a price of $5 equals _____, and the price elasticity of demand, E^D, at a price of $1 equals _____

1b) Assume that the demand equation for exercise watches, such as the Fitbit, is Q^D = 2,200 – 15 P and the supply equation is Q^S = 15 P – 800. After a favorable study shows that using exercise watches significantly reduces users' weights, quantity demanded increases by 300 at every price. The new equilibrium price will be _____ and the new equilibrium quantity will be ____

1c)In the market for oranges, we observe that the equilibrium price increased and the equilibrium quantity increased. What could have caused this change?

1d)The demand curve for a good is Q = 80 – 0.20 P, where Q is the quantity demanded and P is the price per unit. This good's inverse demand curve is:

1. What are the major differences between term and permanent life insurance? When is it best to get term insurance? (15 points)

2. Driving in a severe thunderstorm, Polly collided with another car. Two passengers in the other vehicle were injured. They filed suit against Polly. One claimed $115,000 injuries and the other claimed $135,000 in injuries. The driver of the other vehicle was not harmed, but his car’s damage totaled $6,600.

Polly has bodily injury coverage for 100/300/50. Assume the suit was successful and the court ruled in their favor the amounts in the suit. (20 points)

a) What is the total claim amount?
b) What amount will Polly’s insurance company have to pay to settle these claims?

c) What amount of money will Polly be responsible for paying out of her own pocket in this instance?

3. Amanda had an auto accident with another car with no injuries to anyone. Amanda exchanged information with the other driver, and he admitted he was at fault. He begged her not to report it, saying he had a bad driving record and feared losing his driver’s license. He promised to pay for repairing her car. (10 points)

What should Amanda do? Explain WHY.

4. Winston is married, has four children, owns his home, and has a roofing business. One of Winston’s children has a hereditary heart condition that requires monthly hospitalization for monitoring. (20 points)

In addition to car insurance, what are other types of insurance coverage Winston would be wise to purchase?  Explain WHY he needs each type of coverage.

5. You have a fee-for-service health insurance policy with 80/20 coverage. Your deductible is $750. In February, you had a claim for a doctor’s visit for $250. In May, you have a minor surgical procedure at a clinic that cost $2500. (25 points)

How much of this new claim will you have to pay?

6. Kathy is a thirty-two-year old, stay-at-home mother of three children aged 4, 2, and six months. The family doesn't have much extra money each month. Kathy has no life insurance coverage, but she feels she should buy a policy to cover her life in case something happens to her and her husband would need to provide care for the children. Her husband does not think it is necessary. (10 points)

What kind of life insurance policy would you suggest would be best for her to buy and why?

Dr. Sam Wise, medical director at San Diego Valley Hospital, has just conducted a meeting in which he informed those in attendance of an acute outbreak of Zika virus. In the past 36 hours, two men and one woman, completely unrelated to one another, have presented to Valley’s ER with the symptoms of Zika virus. Their only commonality is that they all live within an area of 17 square miles.

Patient 1, Stevie, is a 24-year-old graduate student at San Diego State University. He is not in a relationship and has had no sexual contact in more than three months. He has not traveled out of the greater San Diego area in the past five months, and he has never left the west coast of the United States.

Patient 2, Tiffany, is a 31-year-old marketing executive. She is married with two children, ages 3 and 4. Tiffany was in Seattle for a weekend, two weeks ago, but she has, otherwise, not left San Diego in more than six months. Her husband and children have not left San Diego in more than a year. Tiffany’s husband and her children exhibit no symptoms of Zika.

Patient 3, Enrique, is a 39-year-old carpenter. He owns his own business, which has him traveling all over the region, within a 100-mile radius of San Diego. However, he has never traveled any farther than that. Enrique is married with four children, aged between 3 and 8 years of age. No one in Enrique’s family has exhibited any Zika symptoms.

Because all of the children are too young to date, and there are no extramarital behaviors in either Tiffany’s or Enrique’s relationships, the possibility of others being infected through sexual intercourse is eliminated. As well, none of the infected parties have traveled to a high risk area.

As the director of community relations at San Diego Valley Hospital, Dr. Wise has charged you with the task of writing an article to be released to the public through the local newspaper. Dr. Wise has charged you with informing the public of a potential Zika outbreak. Your article must include a discussion of the epidemiological triangle, modes of transmission, symptoms of Zika, high-risk populations, associated morbidities, known vaccines, prevention measures, etc. Your article must be written in a lay fashion. In order to assist you in writing the article, the hospital’s epidemiologist has provided you with these CDC-supported resources.

That brother of yours (“The Hot Shot”) comes up with a newfangled options strategy. He purchases a put for $0.60 with a strike price of $40. Then he also writes a put for $0.50 with a strike price of $35 with the same expiration as the first option.

(a) Show him what the maximum profit and loss is for this position.

(b) Draw the profit and loss diagram for this strategy as a function of the stock price at expiration.