. X Corporation plans to announce that it will issue $1.6 million of bonds and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 6%. The company is currently all-equity and worth $6.1 million with 280,000 shares of common stock outstanding. After the sale of the bonds, the company will maintain the new capital structure indefinitely. The annual pretax earnings of $1.45 million are expected to remain constant in perpetuity. The tax rate is 21%.

a. What is the expected rate of return on the company’s equity before the announcement?

b. What is the price per share of X’s equity before the announcement?

c. What is the price per share of X’s equity immediately after the announcement?

d. What is the market value of X’s equity immediately after the actual debt issue and repurchase?

e. What is required rate of return on equity (cost of equity) after the capital structure restructuring?

Advair, a combine bronchodilator and inhaled steroid is relatively slow working. Usually a patient has to wait at least an hour before the full effect of this medicine kicks in. We were interested whether the patients could be reclassified (from severe to moderate COPD) within one-hour based on their Advair intervention. Measurements were made before the Advair was administered and then exactly one-hour after the treatment. Here are the data.

So over 1,500 patients were studied. Of the 1,554, 853 (or 55%) were classified as being severe COPD patients before the Advair intervention and then after the intervention, this number dropped to 766 (or 50%).

So it appears there was an effect within the one-hour time period. Now we need to show it statistically.

So using the McNemar test, test the claim at 95% confidence that there was an Advair intervention effect.

1. State the Null and Alternative Hypotheses (1)
2. State the Decision Rule (2)
3. Determine the McNemar test statistic (3)

State your Decision and Interpretation. (1,1)

The yield to maturity of a 10-year 4% annual coupon bond is 4%.

a.Suppose that you buy the bond today and hold it for 10 years.Assume that the interest rates go up to 5% (100 basis points increase) after the bond is purchased and before the first coupon is received. What is your realized rate of return?

b.Suppose that you buy the bond today and hold it for 6years.Assume that the interest rates go up to 5% (100 basis points increase) after the bond is purchased and before the first coupon is received. What is your realized rate of return?

The yield to maturity of a 10-year 4% annual coupon bond is 4%.

a.Suppose that you buy the bond today and hold it for 10 years.Assume that the interest rates go up to 5% (100 basis points increase) after the bond is purchased and before the first coupon is received. What is yourrealized rate of return?

b.Suppose that you buy the bond today and hold it for 6years.Assume that the interest rates go up to 5% (100 basis points increase) after the bond is purchased and before the first coupon is received. What is yourrealized rate of return?

In a preliminary study to determine whether the installation of a camera designed to catch cars that go through red lights affects the number of violators, the number of red-light runners was recorded for each day of the week before and after the camera was installed. These data are listed here. Can we infer that the camera reduces the number of red-light runners?

Concerned about graffiti, mayors from 6 suburban communities instituted a citizen community watch program. To evaluate the program, the number of graffiti incidents was recorded for the 2-month period before and after the program. Below are the results.

At the 0.025 significance level, can it be concluded that the average number of graffiti incidents declined?

TRANSPORTATION ENGINEERING: A multilane highway has four lanes (2 in each direction) and a measured FFS of 55 mph. One upgrade is 5% and 0.62 miles long. Currently trucks are not permitted on the road, but there are 2% busses in the directional volume of 1900 vehicles (PHF is 0.80). Local authorities are considering allowing trucks into the traffic stream. If this is done, they estimate 150 trucks will use this highway during peak hour. Before trucks, the driver population factor is 1, and it goes to 0.97 after trucks. What will be the level of service before and after trucks are allowed on the road.

• The following are the weekly losses of work-hours due to accidents in 10 industrial plants before and after a certain safety program were put into operation

1. Is the assumption that the difference in weekly losses of work-hours is normally distributed reasonable?
2. Test whether the safety program is effective. Use α=0.05.
3. Find a 95% confidence interval on the difference in mean weekly losses of work-hours.

A coach uses a new technique to train gymnasts. 7 gymnasts were randomly selected and their competition scores were recorded before and after the training. The results are shown below

Subject     A    B    C   D     E      F G
Before     9.6 9.7 9.7 9.4 9.7 9.5 9.5
After       9.7 9.9 9.7 9.3 9.8 9.8 9.3

Using a 0.01 level of significance, test the claim that the training technique is effective in raising the gymnasts’ score.

Use the traditional method of hypothesis testing with critical value t= -3.143.