George would like to borrow $114,000 using an adjustable-rate mortgage instrument. He has the following two options available:

a. 1-year ARM, 15-year amortization schedule, 4.50% initial interest rate, 2% margin, 2% annual interest rate cap, 4% lifetime cap.

b. 1-year ARM, 20-year amortization schedule, 4.25% initial interest rate, 1.75% margin, no cap.

Assume that each of these loans is indexed to the 1-year Treasury rate, and that this index is expected to have a value of 5% at the end of the first year and 7.5% at the end of the second year.

If George’s expected holding period is 3 years, which of these two alternatives has the lowest effective borrowing cost?

A friend proposes to him to invest in a business for which he has projected the following costs and income: 1. Initial cost of $ 100 0002. Expenditure in year 1 of $ 50 0003. Annual expenses from year 2 to 10 of $ 10 000. Additionally he projects that from In year 4, these expenses will increase by $ 2,000 each year. 4. Annual income of $ 40,000 from year 1 to 10. Additionally, it projects that from year 4, income will grow by 15% each year. a) (10 points) calculate the PV using a 5% rate b) (5 points) calculate the annual value using a 5% rate c) (5 points) would you invest in this business? Why? ~ 5 ~

Beth Miller does not believe that the International Fisher Effect holds. Current 1-year interest rates in Europe are 5%, while 1-year interest rates in the U.S. are 3%. Beth converts $100,000 to euros and invests them in Germany. One year later, she converts the euros back to dollars. The current spot rate of the euro is $1.10.

According to the IFE, what should the spot rate of the euro be in 1 year?

If the spot rate of the euro in 1 year is $1.00, what is Beth's percentage return from her strategy?

If the spot rate of the euro in 1 year is $1.08, what is Beth's percentage return from her strategy?

What must the spot rate of the euro be in 1 year for Beth's strategy to be successful?

Use the following information for the next two questions. You are creating a cash flow project for your new venture, CBD IPA, a cannabis-infused beer and have made the following assumptions for the business:

• First year sales of 10,000 cans, rising by 10% each year
• Price per unit of $4.00 each, rising by 2% per year
• Operating expense equals first year sales revenue and rises 10% per year

1. What is the projected sales revenue of CBD IPA in year 3 (6 points)?

1. What is the operating income of CBD IPA in Year 4 (6 points)?

1. Define the profitability index and explain how it may be used a criterion for determining whether to pursue an investment or project (8 points).

"Consider two mutually exclusive projects that will be conducted for a total of 6 years. Project A lasts 3 years (so it will need to be repeated 1 time) and has the following cash flow:
Year 0 -$15,000;
Year 1 $16,000;
Year 2 $17,000;
Year 3 $15,000.
Project B lasts 2 years (so it will need to be repeated 2 times) and has the following cash flow:
Year 0 -$23,000;
Year 1 $19,000;
Year 2 $17,000.
Assume both projects can be repeated with the identical cash flows. The interest rate is 18.9%. Provide the net present worth for 6 YEARS of the project that you should select. If neither project should be selected, enter 0."

A small company heats its building and spends ​$8000 per year on natural gas for this purpose. Cost increases of natural gas are expected to be 9​% per year starting one year from now​ (i.e., the first cash flow is ​$8,720 at EOY​ one). Their maintenance on the gas furnace is ​$350 per​ year, and this expense is expected to increase by 15​% per year starting one year from now​ (i.e., the first cash flow for this expense is $402.50 at the EOY​ one). If the planning horizon is 15 ​years, what is the total annual equivalent expense for operating and maintaining the​ furnace? The interest rate is 20​% per year.

What is the total annual equivalent expense for operating and maintaining the furnace?

Please show all work.

Income Statement Accounts for the Year Ending 2017

Account Balance

Cost of goods sold $1,415,000

Interest expense $293,000

Taxes $227,600

Revenue $2,985,000

​Selling, general, and administrative expenses $453,000

Depreciation $255,000

Income statement. From the following income statement accounts in the popup​ window, (popup window info above)

a. produce the income statement for the year.

b. produce the operating cash flow for the year.

a. produce the income statement for the year.

Complete the income statement below. (Round to the nearest​ dollar.)

b. produce the operating cash flow for the year.

The operating cash flow for the year is

$______. ​(Round to the nearest​ dollar.)

The pottery shop opened a new branch this year. The following figures show the sales volume and advertising expenses.

Sales LY $900,000

Sales TY $1,050,000

Sales plan for next year $975,000

Advertising costs LY $28,500

Advertising costs TY $32,000

Advertising plan $27,500

a. What do the sales trends reflect?

b. What do the advertising costs reflect?

c. What is the percent of increase in sales from last year to next year's plan?

d. What is the percent of increase or decrease in advertising between last year and next year?

e. What is the percent of decrease in sales from this year to next year?

f. Why do you think these fluctuations of volume and expenses might be planned?

A machine can be purchased for $180,000 and used for five years, yielding the following net incomes. In projecting net incomes, straight-line depreciation is applied, using a five-year life and a zero salvage value.

Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and round payback period answer to 3 decimal places.)
  

Suppose the pure expectations theory of the term structure is correct. You can buy a 2-year discount bond with a face value of $1500 for $1360.54. You plan to sell it next year for a price you expect will be $1456.31

a. What is the annual rate of return on 2-year bonds? Explain?

b. What is the rate of return on a 1-year discount bond you expect will hold next year? Explain.

c. What is the rate of return on a 1-year discount bond today? Why?

d. Suppose that, contrary to what was found in part c., the current one-year rate was .04 (4%). Explain what forces would move it to the level you found in part c. (Hint: there are arbitrage opportunities?)