An investor with a leverage ratio of 10 has a cost of debt of 4%pa and is able to buy a portfolio of shares with a yield of 6%. What are the investor's ROA and ROE? (The correct answer is ROA = 2.4%; ROE = 24%)

1. Describe and differentiate between the “Guaranteed Insurability Option” and the “Cost-of-Living Riders”.

Compute the payback statistic for Project A if the appropriate cost of capital is 8 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.)

Project A
Time:	0	1	2	3	4	5
Cash flow:	–$1,600	$590	$660	$640	$420	$220

Should the project be accepted or rejected?

1. What is the ATCF rate of return for a machine that cost 100,000, lasts for 5 years, has zero salvage value, is classified as 3 year MACRS property, produces net revenues after deducting direct and indirect expenses but not depreciation of 26,000 in year 1, 42,000 in years 2 to 4, and 14,000 in year 5 using a tax rate of 21.00%.   

What is capital structure and how important it is? How is the cost of capital related to capital structure?

A new machine will cost $150,000 to place into operation. It is expected to have yearly cash flows of $50,000 for the first five years. The company required rate of return is 9%.

1. Compute the Project's NPV.

2. Compute the Project's IRR.

3. How long is the project's payback period?

4. How long is the project's discounted payback period?

a project with an initial cost of $29,350 is expected to generate cash flows of $7,200, $9,300, $9,400, $8,300 and $8,000 over each of the next 5 years respectively. what is the project payback period

You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 21 million. The cash flows from the project would be SF 5.9 million per year for the next five years. The dollar required return is 14 percent per year, and the current exchange rate is SF 1.11. The going rate on Eurodollars is 4 percent per year. It is 2 percent per year on Euroswiss. Use the approximate form of interest rate parity in calculating the expected spot rates.

a. Convert the projected franc flows into dollar flows and calculate the NPV.

b-1.	What is the required return on franc flows?

b-2.	What is the NPV of the project in Swiss francs?

b-3.	What is the NPV in dollars if you convert the franc NPV to dollars?

Consider a project that has a 10% cost of capital that requires an initial investment of $10,000. The year 1 net cash inflow is $2,450; the year 2 net cash inflow is $2,850; the year 3 net cash inflow is $3,350; the year 4 net cash inflow is $3,750; and the year 5 net cash inflow is $5,250. What is the project's discounted payback? NPV? AND IRR?

Ending inventory presented on the balance sheet must be based on the Lower of Cost or Market. What does this mean?