The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.1 million shares outstanding, is now (1/1/20) selling for $70.00 per share. The expected dividend at the end of the current year (12/31/20) is 50% of the 2019 EPS. Because investors expect past trends to continue, g may be based on the historical earnings growth rate. (Note that 9 years of growth are reflected in the 10 years of data.)

The current interest rate on new debt is 11%; Foust's marginal tax rate is 25%; and its target capital structure is 40% debt and 60% equity.

1. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places.

     %

   Calculate Foust's cost of common equity. Calculate the cost of equity as r_s = D₁/P₀ + g. Do not round intermediate calculations. Round your answer to two decimal places.

     %

2. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places.

     %

. A bike shop is selling a fashionable newly designed folding bike. The shop is now considering how many of them to order for the coming season. The supplier requires that orders for the bikes must be placed in quantities of 25. The cost per bike is $820, $790, $750 and $700 for an order of 25, 50, 75 and 100 respectively. The bikes will be sold for $1,200 each. Since there will be a new design for folding bikes next season and there is no spare storage space in the store, any bikes left over at the end of this season will have to be sold at a low price of $450 each to another bike shop. However, if the shop runs out of bikes during the season, it will suffer a loss of goodwill among its customers. The shop estimates this goodwill loss to $60 per customer who is not able to buy a bike. From past experience, the shop estimates that the demand for folding bikes this coming season will be 25, 50, 75 and 100 bikes with probabilities of 0.4, 0.3, 0.2 and 0.1 respectively.

(a) Construct the payoff table for the above situation.

(b) Which alternative should be chosen using each of the maximax, maximin, minimax regret, Hurwicz (take α = 0.6), equal likelihood, expected value, and expected opportunity loss criteria?

(c) Find the expected value of perfect information.

FINA 3320: Corporate Finance

Project 3: Risk and Return

Equity Eddie’s Company Net Income Forecast (in 000’s)

Barry Borrower’s Company Net Income Forecast (in 000’s)

Please show how you got the answer

1.Calculate the expected values of Equity Eddie’s and Barry Borrower’s net incomes.

2. Calculate the standard deviations of Equity Eddie’s and Barry Borrower’s netincomes.

3. Calculate the coefficients of variation of Equity Eddie’s and Barry Borrower’s netincomes.

4. Compare Equity Eddie’s and Barry Borrower’s degrees of financial risk, which firm do you prefer?

You roll two six-sided even dice. What is the probability that you get a score of at least 11?

a. 2/11

b. 1/12

c. 1/18

d. 1/6 
 


You toss a fair coin 3 times in a row. What is the probability of getting at most two heads?

a. 3/4

b. 1/4

c. 3/8

d. 7/8

DC Inc. has two production divisions. Division A produces Component X, which is used by Division B. To Division A, the cost of producing one unit of X consists of unit direct material cost of $100, unit direct labor cost of $130, unit variable overhead of $125, and unit fixed overhead of $48 at the current production volume. The current market price of X is $500 per unit. The company is now trying to determine the transfer price of X.

1. Using the general transfer pricing rule, find the market-based transfer price for each of the following scenarios:

1) Division A is operating at full capacity.

2) Division A is operating at less than full capacity.

(4 points)

2. Describe a situation when a market-based transfer price is not likely to work. Explain in detail using dollar amounts. (8 points)

3. Suggest other approaches that may replace the market-based approach. For each of those alternatives, explain in detail using dollar amounts. (8 points)

DC Inc. has two production divisions. Division A produces Component X, which is used by Division B. To Division A, the cost of producing one unit of X consists of unit direct material cost of $100, unit direct labor cost of $130, unit variable overhead of $125, and unit fixed overhead of $48 at the current production volume. The current market price of X is $500 per unit. The company is now trying to determine the transfer price of X.

1. Using the general transfer pricing rule, find the market-based transfer price for each of the following scenarios:

1) Division A is operating at full capacity.

2) Division A is operating at less than full capacity.

(4 points)

2. Describe a situation when a market-based transfer price is not likely to work. Explain in detail using dollar amounts. (8 points)

3. Suggest other approaches that may replace the market-based approach. For each of those alternatives, explain in detail using dollar amounts. (8 points)

DC Inc. has two production divisions. Division A produces Component X, which is used by Division B. To Division A, the cost of producing one unit of X consists of unit direct material cost of $100, unit direct labor cost of $130, unit variable overhead of $125, and unit fixed overhead of $48 at the current production volume. The current market price of X is $500 per unit. The company is now trying to determine the transfer price of X.

1. Using the general transfer pricing rule, find the market-based transfer price for each of the following scenarios:

1) Division A is operating at full capacity.

2) Division A is operating at less than full capacity.

(4 points)

2. Describe a situation when a market-based transfer price is not likely to work. Explain in detail using dollar amounts. (8 points)

3. Suggest other approaches that may replace the market-based approach. For each of those alternatives, explain in detail using dollar amounts. (8 points)

Here are the returns on two stocks.

Required:

a-1. Calculate the variance and standard deviation of each stock.

a-2. Which stock is riskier if held on its own?

b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks.

c. Is the variance more or less than halfway between the variance of the two individual stocks?

use *python

Though CPUs, and computer hardware in-general, are not the main focus of this course, it can be useful to know a thing or two about computer hardware. The CPU (Central Processing Unit) is generally the piece of hardware that carries out the instructions of the python programs that you run in this class.

In this short PA, you will write a program that takes a few input values related to CPU performance. The program should determine whether or not the specified CPU is within one of four categories: high-performance, medium-performance, low-performance, and in need of an upgrade. Name the file cpu.py. Shown below is an example of the program prompting the user for three inputs, and then printing out the corresponding CPU performance category:

Press ENTER or type command to continue
Enter CPU gigahertz:
2.7
Enter CPU core count:
2
Enter CPU hyperthreading (True or False):
False

That is a low-performance CPU

• The first input, Gigahertz, should be converted to a float
• The second input, core count, should be an integer
• The third input, hyperthreading, should be a boolean. You should think of a way to go from a string 'True' or 'False' into a boolean True or False. (In case you were wondering, hyperthreading is a feature of some CPUs allowing for better performancce).

The program should spit out one of 4 strings:

• That is a high-performance CPU.
• That is a medium-performance CPU.
• That is a low-performance CPU.
• That CPU could use an upgrade.

How you determine which to print out should be based on the below tables:

If the CPU has hyperthreading

If the CPU does not have hyperthreading

There’s also one “special-case” rule: If a CPU has 20 or more cores, regardless of the other stats, it should be considered high-performance.

Examples

Below are several examples of program runs. There will be more tests on Gradescope.

Enter CPU gigahertz:
2.0
Enter CPU core count:
8
Enter CPU hyperthreading (True or False):
True

That is a low-performance CPU.

Enter CPU gigahertz:
4.0
Enter CPU core count:
6
Enter CPU hyperthreading (True or False):
False

That is a medium-performance CPU.