The following data set provides information on the lottery sales, proceeds, and prizes by year in Iowa.

FY

Sales

Proceeds

Prizes

1992

$166,311,122

$45,678,558

$92,939,035

1993

$207,192,724

$56,092,638

$116,820,274

1994

$206,941,796

$56,654,308

$116,502,450

1995

$207,648,303

$58,159,175

$112,563,375

1996

$190,004,182

$51,337,907

$102,820,278

1997

$173,655,030

$43,282,909

$96,897,120

1998

$173,876,206

$42,947,928

$96,374,445

1999

$184,065,581

$45,782,809

$101,981,094

2000

$178,205,366

$44,769,519

$98,392,253

2001

$174,943,317

$44,250,798

$96,712,105

2002

$181,305,805

$48,165,186

$99,996,233

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Create a graph using the sales and year. What approximate range of sales would you expect for the year 2017?

Select the correct answer below:

Between 250 and 300 million dollars

Between 300 and 375 million dollars

Between 375 and 400 million dollars

Between 500 and 550 million dollars

A project cost $650 and has cash flows of $150 for the first year, $100 for the second year, and $80 in each of the subsequent years. What is the payback period of the project?

If a project requires $10 million investment at year 0, and creates a stream of annual payoffs that grow at 2% per year forever: the first payoff of $1 million arrives in year 1, the payoff in year 2 is $1.02 million (that is, it grows by 2%), and so on. Assume that the cost of capital is 10% per year, and that you face no financial constraint.

a. (5 pt) What is the NPV of the project? Would you accept the project based on NPV rule?

b. (5 pt) Based on IRR rule, would you accept the project? You need to show your calculation.

c. (5 pt) If the required payback period is 5 years, would you accept the project based on the payback rule? Again, you need to show your work (calculations, explanations).

d. (5 pt) If the required payback period is 5 years, would you accept the project based on the discounted payback rule? Show your work (calculations, explanations).

A stock is currently trading at $100. Consider a European call option with 1 year to maturity
and strike price $105. The continuously compounded risk-free interest rate is 10% per annum.
The option currently trade at $7.5 Calculate the implied volatility.

14. John deposits $500 at the beginning of each year for 2 years into a fund that earns 8% annual effective. Half of the interest is reinvested at 10% annual effective and the remaining half is reinvested in John's pocket which will earn 0% interest. Calculate the accumulated value in all accounts after 10 years has passed.

Ward Corp. is expected to have an EBIT of $2,100,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $169,000, $93,000, and $119,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $15,000,000 in debt and 840,000 shares outstanding. At Year 5, you believe that the company's sales will be $16,300,000 and the appropriate price–sales ratio is 2.4. The company’s WACC is 8.4 percent and the tax rate is 40 percent.

What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Share price            $

Case Study - Cholera A 25 year old woman is brought into a clinic in Bangladesh during the monsoon season. She is almost comatose, her pulse is weak and she is experiencing tachycardia. She has severe diarrhea, and is producing watery stool at a rate of 950 ml/hr. Her skin appears shriveled, and when a fold of skin is pinched it remains so for several minutes. Microscopic examination of the patient’s stool reveals the presence of a large number of Vibrio cholerae bacteria. The patient cannot drink, so intravenous isotonic NaCl is administered. When the patient is conscious, she is given an oral rehydration solution to drink. It contains NaCl, KCl, NaHCO3 and glucose. After 5 days she is sufficiently recovered to leave the hospital.

1. How did she most likely encounter the bacteria?

2. Why does she exhibit weak pulse and tachycardia? Why is she almost comatose?

3. How did the cholera toxin enter the cells and how did it affect intracellular signal transduction pathways and membrane transport.

4. How do intravenous fluids immediately improve the patient’s condition? Why isotonic NaCl?

5. What is the rationale for the ingredients in the oral rehydration solution?

6. Why does the patient recover in 5 days with this treatment and without antibiotics?

A corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $4 million as a result of an asset expansion presently being undertaken. Fixed assets total $3 million, and the firm plans to maintain a 50% debt-to-assets ratio. The corp's interest rate is currently 10% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 10% of total sales, and the federal-plus-state tax rate is 40%.

1. What is the expected return on equity under each current assets level? Round your answers to two decimal places.
   

   Restricted policy		__%
   Moderate policy		__%
   Relaxed policy		__%

2. 
   
3. In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption?
   1. Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm.
   2. Yes, the current asset policies followed by the firm mainly influence the level of fixed assets.
   3. No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales.
   4. Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales.
   5. Yes, sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs.

The following data set provides information on the lottery sales, proceeds, and prizes by year in Iowa.

FY

Sales

Proceeds

Prizes

1992

$166,311,122

$45,678,558

$92,939,035

1993

$207,192,724

$56,092,638

$116,820,274

1994

$206,941,796

$56,654,308

$116,502,450

1995

$207,648,303

$58,159,175

$112,563,375

1996

$190,004,182

$51,337,907

$102,820,278

1997

$173,655,030

$43,282,909

$96,897,120

1998

$173,876,206

$42,947,928

$96,374,445

1999

$184,065,581

$45,782,809

$101,981,094

2000

$178,205,366

$44,769,519

$98,392,253

2001

$174,943,317

$44,250,798

$96,712,105

2002

$181,305,805

$48,165,186

$99,996,233

HelpCopy to ClipboardDownload CSV

Create a graph using the sales and year. What approximate range of sales would you expect for the year 2017?

Select the correct answer below:

Between 250 and 300 million dollars

Between 300 and 375 million dollars

Between 375 and 400 million dollars

Between 500 and 550 million dollars

Consider an investment that pays $39.66 in year 1, and then stabilizes and pays $4.73 every year forever after that (the first cash flow is in year 2) This firm does not intend to grow and has an interest rate (required rate of return) of 7%.  What is the present value of this investment opportunity? Give your answer to two decimals.