Question: Question:Evaluate the following statement: "Adding a high risk emerging market bond to a portfolio can actually reduce overall portfolio risk."

a)This statement is true because the correlations between emerging and developed market instruments are low, zero or negative.

b)This statement is false because a high risk bond from a high risk market is too much to derive significant benefits.

c)This statement is inconclusive because we don't know if the market is integrated or segmented.

d)The statement is true but under the condition that the high risk emerging bond should only represent a small portion of a long term portfolio.

e)This statement is false because the bond must show evidence of lower risk markets.

Question 2 3 pts Check all answers that are consistent with unsystematic factors that affect Treasury bonds when priced in asegmented market.

a)Domestic economic growth as measured by growth in GDP.

b)Domestic interest rate movements

c)Global risk

d)Global economic growth as measured by growth in GDP.

e)Gobal interest rate movements

f)Domestic country risk

g)T-bonds do not have exposure to unsystematic risk in segmented market only in integrated markets.

Question 3 4 pts The beta of a security's ROPC: (select all true responses)

a)A measure of security return elasticity.

b)A measure of systematic + unsystematic risk.

c)A measure of total risk.

d)measures unsystematic risk.

e)measures the magnitude of the security's response to changes in the market.

f)measures the entire range of possible outcomes over a given period of time.

g)Slope of a least squares regression.

h)A measure of systematic risk.

i)measures the magnitude of the security's response to changes in other securities.

j)measures the volatility.

Question 4 4 pts The standard deviation of a security's ROPC: (select all true responses)

a)measures the magnitude of the security's response to changes in other securities.

b)measures the magnitude of the security's response to changes in the market.

c)measures the entire range of possible outcomes over a given period of time.

d)None of the above. e)Slope of a least squares regression.

f)A measure of systematic risk.

g)A measure of systematic + unsystematic risk.

h)A measure of total risk.

i)A measure of security return elasticity.

j)measures unsystematic risk.

k)measures the volatility.

Question 5 3 pts The appropriate label for the standard deviation is a) __________ and the appropriate label for beta is b) _____ Possible Labels: %, X, DC/FC, FC/DC)

Complete Stop Driving School charges $500 per student to prepare and administer written and driving tests. Variable costs of $150 per student include​ trainers' wages, study​ materials, and gasoline. Annual fixed costs of $140,000 include the training facility and fleet of cars.

Requirement 1. For each of the following independent​ situations, calculate the contribution margin per unit and the breakeven point in​ units:

Begin by showing the formula for contribution margin per unit and then enter the amounts to calculate the contribution margin per unit for each situation. ​(Abbreviation used: CM​ = contribution​ margin.)

Now select the labels to show the formula for breakeven point in units and then enter the amounts to calculate the breakeven point in units for each situation. ​(Complete all answer boxes. Abbreviation​ used: CM​ = contribution​ margin.)

Requirement 2. Compare the impact of changes in the sales​ price, variable​ costs, and fixed costs on the contribution margin per unit and the breakeven point in units.

​First, compare the impact of changes in the sales​ price, variable​ costs, and fixed costs on the contribution margin per unit.

The contribution margin

▼

decreases

does not change

increases

when the sales price decreases. The contribution margin

▼

decreases

does not change

increases

when variable costs decrease. The contribution margin

▼

decreases

does not change

increases

when the fixed costs decrease.

​Now, compare the impact of changes in the sales​ price, variable​ costs, and fixed costs on the breakeven point in units.

The breakeven point

▼

decreases

does not change

increases

when the sales price decreases. The breakeven point

▼

decreases

does not change

increases

when the variable costs decrease. The breakeven point

▼

decreases

does not change

increases

when fixed costs decrease.

Choose from any list or enter any number in the input fields and then continue to the next question.

Kaelea, Inc., has no debt outstanding and a total market value of $129,000. Earnings before interest and taxes, EBIT, are projected to be $8,700 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 22 percent higher. If there is a recession, then EBIT will be 33 percent lower. The company is considering a $42,900 debt issue with an interest rate of 5 percent. The proceeds will be used to repurchase shares of stock. There are currently 4,300 shares outstanding. Assume the company has a market-to-book ratio of 1.0.

a. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued, assuming no taxes. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b. Calculate the percentage changes in ROE when the economy expands or enters a recession, assuming no taxes. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.)

  
Assume the firm goes through with the proposed recapitalization and no taxes.

c. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

d. Calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Assume the firm has a tax rate of 40 percent.

e. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

f. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming the firm goes through with the proposed recapitalization. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Kaelea, Inc., has no debt outstanding and a total market value of $153,000. Earnings before interest and taxes, EBIT, are projected to be $9,500 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $45,300 debt issue with an interest rate of 5 percent. The proceeds will be used to repurchase shares of stock. There are currently 5,100 shares outstanding. Assume the company has a market-to-book ratio of 1.0.

a. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued, assuming no taxes. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b. Calculate the percentage changes in ROE when the economy expands or enters a recession, assuming no taxes. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.)

  
Assume the firm goes through with the proposed recapitalization and no taxes.

c. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

d. Calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Assume the firm has a tax rate of 35 percent.

e. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

f. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming the firm goes through with the proposed recapitalization. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Kaelea, Inc., has no debt outstanding and a total market value of $63,000. Earnings before interest and taxes, EBIT, are projected to be $8,600 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 21 percent higher. If there is a recession, then EBIT will be 34 percent lower. The company is considering a $21,300 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 4,200 shares outstanding. Assume the company has a market-to-book ratio of 1.0.

a. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued, assuming no taxes. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b. Calculate the percentage changes in ROE when the economy expands or enters a recession, assuming no taxes. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.)

  
Assume the firm goes through with the proposed recapitalization and no taxes.

c. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

d. Calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Assume the firm has a tax rate of 35 percent.

e. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

f. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming the firm goes through with the proposed recapitalization. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Kaelea, Inc., has no debt outstanding and a total market value of $100,000. Earnings before interest and taxes, EBIT, are projected to be $8,400 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 24 percent higher. If there is a recession, then EBIT will be 31 percent lower. The company is considering a $35,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 4,000 shares outstanding. Assume the company has a market-to-book ratio of 1.0.

a. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued, assuming no taxes. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b. Calculate the percentage changes in ROE when the economy expands or enters a recession, assuming no taxes. (A negative answer should be indicated by a minussign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.)

  
Assume the firm goes through with the proposed recapitalization and no taxes.

c. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

d. Calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Assume the firm has a tax rate of 35 percent.

e. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

f. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming the firm goes through with the proposed recapitalization. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

CHAPTER 9 CASE Jackson Erectors    Making Capital Investment Decisions

Jackson Erectors is a midsized electronics manufacturer located in Austin, Texas. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded more than 70 years ago. Over the years, the company has expanded, and it is now an established manufacturer of various specialty electronic items. The company’s finance department has hired YOU, a recent MBA graduate to do an analysis of a proposed new product.

One of the major revenue-producing items manufactured by Jackson is a “controller” which are used in various types of automated equipment. Jackson currently has one model on the market and sales have been good. The technology in electronic devices is constantly changing. However, as with any electronic item, technology changes rapidly, and the current model has limited features in comparison with newer models. Jackson spent $400,000 to develop a prototype for a new controller that will be “state of the art”. The company has spent a further $100,000 for a marketing study to determine the expected sales figures for the new model.

Jackson can manufacture the new controller for $300 each in variable costs. Fixed costs for the operation are estimated to run $4.0 million per year. The estimated sales volume is 70,000, 90,000, 95,000, 85,000, and 75,000 per year for the next five years, respectively. The unit price of the new controller will be $550. The necessary equipment can be purchased for $40.0 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $2.5 million.

Net working capital for the controller will be 15 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC will thus first occur in Year 1 with the first year's sales. Jackson has a 30 percent corporate tax rate and a required return of 12 percent. Shelly has asked you to prepare a report that answers the following questions:

QUESTIONS

Prepare a detailed pro forma income statement including calculation of Operating Cash Flows

1. What is the payback period of the project?
2. What is the profitability index of the project?
3. What is the IRR of the project?
4. What is the NPV of the project?
5. How sensitive is the NPV to changes in the price of the new Controller? Assume a 5% price reduction
6. How sensitive is the NPV to changes in the quantity sold? Assume a 700 per year unit reduction in quantity sold
7. Should Jackson produce the new Controller?
8. Suppose Jackson looses sales on other models because of the introduction of the new model. How would this affect your analysis?

onch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded more than 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company in its finance department.

One of the major revenue-producing items manufactured by Conch Republic is a smartphone. Conch Republic currently has one smartphone model on the market and sales have been excellent. The smartphone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smartphone that has all the features of the existing one but adds new features such as wifi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smartphone.

Conch Republic can manufacture the new smartphone for $205 each in variable costs. Fixed costs for the operation are estimated to run $5.1 million per year. The estimated sales volume is 64,000, 106,000, 87,000, 78,000, and 54,000 per year for the next five years, respectively. The unit price of the new smartphone will be $485. The necessary equipment can be purchased for $34.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.5 million.

Net working capital for the smartphones will be 20 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC will thus first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a required return of 12 percent.

Shelly has asked Jay to prepare a report that answers the following questions:

1. What is the payback period of the project?

2. What is the profitability index of the project?

3. What is the IRR of the project?

4. What is the NPV of the project?

5. How sensitive is the NPV to changes in the price of the new smartphone?

6. How sensitive is the NPV to changes in the quantity sold?

7. Should Conch Republic produce the new smartphone?

8. Suppose Conch Republic loses sales on other models because of the introduction of the new model. How would this affect your analysis?

PLEASE ANSWER ALL QUESTIONS USING EXCEL. THANK YOU!

Kaelea, Inc., has no debt outstanding and a total market value of $69,000. Earnings before interest and taxes, EBIT, are projected to be $9,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $21,900 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 4,600 shares outstanding. Assume the company has a market-to-book ratio of 1.0.

a. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued, assuming no taxes. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b. Calculate the percentage changes in ROE when the economy expands or enters a recession, assuming no taxes. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.)

  
Assume the firm goes through with the proposed recapitalization and no taxes.

c. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

d. Calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Assume the firm has a tax rate of 35 percent.

e. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

f. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming the firm goes through with the proposed recapitalization. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)