Ginny is endowed with $10 million and is deciding whether to invest in a restaurant. Assume perfect capital markets with an interest rate of 6%.

2. Which investment option should Ginny choose?

Ginny is actively pursuing another business venture as a ticket scalper. She estimates that for a $2 million investment in inventory she can resell her tickets for $6 million over the next year (cash flows realized in exactly one year).  Assume the same 6% interest rate.

3. What is the NPV of the Ticket Brokering venture?
4. What is the new value of Ginny’s Corporation?
5. Suppose Ginny does not want to use her own $2 million to start the new venture. Instead, she wants to raise equity capital by issuing 100,000 new shares. What price will new investors be willing to pay?
6. How many shares will need to be sold to outside investors?
7. How will your answer differ if Ginny is not guaranteed to resell the tickets for $6 million?
8. According to Ginny’s prospectus, cash flows from ticket sales (net of expenses) are expected to follow the following distribution:

What is the new value of Ginny’s Corporation?

9. What price will new investors be willing to pay for Ginny’s shares?

Please only answer Q6, Q7, Q8, Q9 four questions. Thanks.

QUESTION 4

1. Company ABC is a manufacturing company specialized in three auto parts denoted by X, Y, and Z respectively. The company is preparing for the budgets for the next year and has collected the following information:

1. The company allocates $10 of variable overhead cost to each labor hour.
2. The total fixed cost for the entire company is $300,000.
3. The company has a total labor budget of $50,000 with an hourly labor cost of $10.
4. After calculation, it costs $0.5 to run the machine for 1 hour. Company’s total budget for running machine is $20,000.

Required: (Please note that you should answer the questions in Word offline and please do NOT answer in the Blackboard!!!)

5. Does the company have any constraint? If yes, what is the constraint?
6. Given the constraint, what is the optimal production plan for the company that maximizes the company’s profit?
7. Company ABC has another two products: A and B. A can be sold “as is” (price: $300) or processed further into product A1 (price: $500). B can be sold “as is” (price: $200) or processed further into product B1 (price: $280). The allocated joint costs of A and B are $20 and $10, respectively. The cost of further processing costs of A and B are $185 and $78, respectively. Which product should be processed further and why?

A certain compound, A, reacts to form products according to the reaction A → P. The amount of A is measured as a function of time under a variety of different conditions and the tabulated results are shown here:

Make a graph of [A] vs. t, a graph of ln[A] vs. t, and a graph of 1/[A] vs. t using the data for 25 °C. Then make similar graphs for the other temperatures. What is the order of the reaction with respect to A? Explain your answer.

a. Use the data to determine the rate constant at each temperature. b. What is the activation energy for this reaction?

c. The same reaction is conducted in the presence of a catalyst, and the following data are obtained:

What effect does a catalyst have on the rate of the reaction? What is the activation energy for this reaction in the presence of the catalyst? How does it compare with the activation energy for the reaction when the catalyst isn’t present?

Commercial fishermen in Alaska go into the Bering Sea to catch all they can of a
particular species (salmon, herring, etc.) during a restricted season of a few weeks.
The schools of fish move about in a way that is very difficult to predict, so the fishing in a
particular spot might be excellent one day and terrible the next.
The day-to-day records of catch size were used to discover that the probability of a good
fishing day being followed by another good day is 0.5, by a medium day 0.3, and by a poor
day 0.2.
A medium day is most likely to be followed by another medium day, with a probability of 0.4,
and equally likely to be followed by a good or bad day.
A bad day has a 0.1 probability of being followed by a good day, 0.4 of being followed by a
medium day, and 0.5 probability of being followed by another bad day.
a) (10 points) If the fishing day is bad on Monday, what is the probability that it will be
medium on Thursday?
b) (10 points) Suppose the fishing day will be good w.p. 0.25, medium w.p. 0.30 and bad
with 0.45 on the current day, which is a Tuesday. How do you think fishermen came up
with these probabilities for the current day? Argue.
c) (10 points) Given the probabilities in part b, calculate the probability of having a bad
fishing day after three days.
d) (10 points) What is the probability of four consecutive good fishing days until it gets
worse.
e) (10 points) If the fishing day is medium initially, for how many days on the average will it
remain medium? What is the distribution of this number of days?

Devon Limited is a company that has issued corporate bonds with a par value of $100 and a coupon rate of 11%. The Total Statement of Financial Position value of bonds is $50million. The company’s bonds are currently trading at a price of $103. Interest is payable annually in arrears. The maturity date is in four years time. The company has a target capital structure of 25% debt, 15% redeemable preference shares, 10% non-redeemable preference shares, and 50% in ordinary equity financing. Retained earnings and contributed capital amount to $100million. The company has two types of preference shares in issue. There are 0.2 million non-redeemable preference shares which are issued at $100 per share and there are 0.3 million redeemable shares which were also issued at $100 and are redeemable at $100 per share. The maturity date of redeemable shares is in four years’ time. Preference dividends are payable annually in arrears for both issues. Non-redeemable preference shares are currently priced at $107 and the redeemable preference shares are currently priced at $104. The coupon rates are 9% for each issue and coupon payments were recently paid.The company’s beta is 1.20 and the risk free rate is 8%. The market premium is expected to be 5.5%. The corporation tax rate is 28%.

Required:

(a)What is Devon’s after tax cost of debt?

(b)What is the cost of the two types of preference shares?

(c)What is the cost of equity?

(d)What is the company’s weighted average cost of capital?

Ginny’s Restaurant Problem

Ginny is endowed with $10 million and is deciding whether to invest in a restaurant. Assume perfect capital markets with an interest rate of 6%.

1. List 4 perfect capital market assumptions.

1.   _ ______

2.   _ ______

3.     ______

4.   _ ______

2. Which investment option should Ginny choose?

Ginny is actively pursuing another business venture as a ticket scalper. She estimates that for a $2 million investment in inventory she can resell her tickets for $6 million over the next year (cash flows realized in exactly one year).  Assume the same 6% interest rate.

3. What is the NPV of the Ticket Brokering venture?
4. What is the new value of Ginny’s Corporation?
5. Suppose Ginny does not want to use her own $2 million to start the new venture. Instead, she wants to raise equity capital by issuing 100,000 new shares. What price will new investors be willing to pay?
6. How many shares will need to be sold to outside investors?
7. How will your answer differ if Ginny is not guaranteed to resell the tickets for $6 million?

(ix)      According to Ginny’s prospectus, cash flows from ticket sales (net of expenses) are expected to follow the following distribution:

What is the new value of Ginny’s Corporation?

(x)       What price will new investors be willing to pay for Ginny’s shares?

7. According to the absorption approach, the economic circumstances that best warrant a currency devaluation is where the domestic economy faces:

8. Assume an economy operates at full employment and faces a trade deficit. According to the absorption approach, currency devaluation will improve the trade balance if domestic:

10. The Marshall-Lerner condition deals with the impact of currency depreciation on:

11.  American citizens planning a vacation abroad would welcome:

12. Assume the Canadian demand elasticity for imports equals 0.2, while the foreign demand elasticity for Canadian exports equals 0.3. Responding to a trade deficit, suppose the Canadian dollar depreciates by 20 percent. For Canada, the depreciation would lead to a:

Consuela Lopez is a dietitian for the basketball team at BBB College, and she is attempting to determine a nutritious lunch menu for the team. She has set the following nutritional guidelines for each lunch serving:

            1. Between 1,500 and 2,000 calories

            2. At least 5 mg of iron

            3. At least 20 but no more than 60 g of fat

            4. At least 30 g of protein

            5. At least 40 g of carbohydrates

            6. No more than 30 mg of cholesterol

She selects the menu from seven basic food items, as follows, with the nutritional contribution per pound and the cost as give:

The dietitian wants to select a menu to meet the nutritional guidelines while minimizing the total cost per serving.

a. Formulate a linear programming model for this problem

b. Solve the model using Excel solver

Please show step by step in excel