a. As the Head of Business Development of Fidelity Venture Capital, a client has presented a business plan that has the following projected returns for your consideration;

Stock A Stock B

State of the Economy Returns / Prob Returns / Prob

Excellent 32% / 0.4 40% / 0.2

Worse -5% / 0.4 8% / 0.3

Normal 21. % / 0.2 25% /  0.5

Required:

i. Calculate the expected return for each stock

ii. Calculate the total risk of the client’s business for each stock

iii. If your client plans investing equally in each stock, with a correlation coefficient of -0.8, what is the portfolio return and portfolio risk?

iv. If the beta of the client’s business is 0.9 and the risk free rate is 22%, calculate the required rate of investment if the market risk premium is 4%.

For each of the following, (a) calculate the elasticity, (b) interpret your result (in terms of whether a good is elastic/inelastic, and what the percentage change in quantity will be in response to a 1% change in price), and (c) indicate what would happen to revenues for this good if the price was increased In response to a 10% increase in price, the quantity demanded of Bubly decreased by 20% In response to a 5% decrease in price, the quantity demanded of steak increased by 60% In response to a 10% increase in price, the quantity demanded did not change. Part 2: Figure out how much the quantity demanded changed for each of the following: When the price elasticity of demand is 3, and the price increases by 10%. When the price elasticity of demand is 0, and the price increases by 10%. When the price elasticity of demand is 0.3, and the price increases by 10%.

For each of the following,

(a) calculate the elasticity,

(b) interpret your result (in terms of whether a good is elastic/inelastic, luxury/necessity, and what the percentage change in quantity will be in response to a 1% change in price), and

(c) indicate what would happen to revenues for this good if the price was increased

1. In response to a 10% increase in price, the quantity demanded of Bubly decreased by 20%
2. In response to a 5% decrease in price, the quantity demanded of steak increased by 60%
3. In response to a 10% increase in price, the quantity demanded did not change.

Part 2:

Figure out how much the quantity demanded changed for each of the following:

1. When the price elasticity of demand is 3, and the price increases by 10%.
2. When the price elasticity of demand is 0, and the price increases by 10%.
3. When the price elasticity of demand is 0.3, and the price increases by 10%.

Problem # 1

The monthly sales for Telco Batteries Inc. were as follows:

                        Sales

Month            (000 units)

January            20

February          21

March              15

April                14

May                 13

June                 16

July                 17

August            18

September       20

October           20

November       21

December        23

1. Plot the monthly sales data.
2. Forecast coming January sales using each of the following:
   1. The naïve approach
   2. A 6-month moving average
   3. A 6-month weighted average using 0.1, 0.1, 0.1, 0.2, 0.2 and 0.3, with the heaviest weights applied to the most recent months.
3. Calculate the mean absolute deviation (MAD) and the mean squared error (MSE) for each of the method above. Which is better among the three methods?

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of 0.3, and a tax rate of 40 percent. Assume a risk-free rate of 4 percent and a market risk premium of 12 percent. Lauryn’s Doll Co. had EBIT last year of $45 million, which is net of a depreciation expense of $4.5 million. In addition, Lauryn's made $4.25 million in capital expenditures and increased net working capital by $4.1 million. Assume the FCF is expected to grow at a rate of 2 percent into perpetuity. What is the value of the firm? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Firm value= million

1.

Looking to compare, thanks.

A) Allocate the two support departments' costs to the two operating departments using the following methods?

Direct Method
Step-down method (Allocate AS first)
Step -down method (Allocate IS first)

B) Compare and Explain differences in the support department costs allocated to each operating department?

C) What approaches might be used to decide the sequence in which to allocate support departments when using the step-down method?

VAR Calculation

A firm has a portfolio composed of stock A and B with normally distributed returns. Stock A has an annual expected return of 15% and annual volatility of 20%. The firm has a position of $100 million in stock A. Stock B has an annual expected return of 25% and an annual volatility of 30% as well. The firm has a position of $50 million in stock B. The correlation coefficient between the returns of these two stocks is 0.3.

a.       Compute the 5% annual VAR for the portfolio. Interpret the resulting VAR.

b.       What is the 5% daily VAR for the portfolio? Assume 365 days per year.

c.       If the firm sells $10 million of stock A and buys $10 million of stock B, by how much does the 5% annual VAR change?

Debby’s Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $20,900. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby’s cost of capital is 15 percent. Probability Cash flow 0.1 $4,570 0.3 5,550 0.4 7,400 0.2 9,930 a. What is the expected cash flow? Expected cash flow $ b. What is the expected NPV? (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to the nearest whole dollar.) NPV $ c. Should Debby buy the new equipment? Yes No

The safety rules do not allow the concentration of the toxic solution exceeding 0.1 mg to be released in the environment. In a chemical factory, this toxic chemical solution is used in the process. The solution flows at a constant rate of 4 L/min into a safety tank that initially contains 100 L of pure water. The toxic solution inside the tank is kept well stirred and flows out of the tank at a rate of 3 L/min. The concentration of the toxic solution entering the tank is 0.3 mg/L.

a) Determine the mass of the toxic product in the tank after t minutes.

b) Find when the concentration of the toxic solution in the tank will be 0.1 mg/L.

c) Use Range-Kutta method with increment = Time in (question b) / 4 d) Compare your results by finding the error

Consider the following information regarding the performance of a money manager in a recent month. The table represents the actual return of each sector of the manager’s portfolio in column 1, the fraction of the portfolio allocated to each sector in column 2, the benchmark or neutral sector allocations in column 3, and the returns of sector indices in column 4.

a.         What was the manager's return for the month? What was her value-added performance for the month?

b.         What was the contribution of asset allocation to relative performance?

c.         What was the contribution of security selection to relative performance?