Question 1
Question 1 (Multiple Choice Worth 5 points) When looking at the graph of the Security Market Line, what is the interpretation of where the line crosses the return axis (y-axis)? The Security Market Line crosses the return axis at the expected rate of return for the market. The Security Market Line crosses the return axis at the risk-free rate of return. The Security Market Line crosses the return axis at the expected rate of return for the stock in question. The Security Market Line crosses the return axis at the market risk premium. Question 2 (True/False Worth 5 points) The sale of common stock of small private companies and private placement transactions are good examples of brokered markets. True False Question 3 (True/False Worth 5 points) The expected return of the market portfolio is equal to that of the risk-free risk security. True False Question 4 (Multiple Choice Worth 5 points) Jack Korner is looking into buying a 15-year bond issued by Jurgen Corp. The bond pays a coupon of 7.5 percent annually. Similar bonds will yield 7 percent in the market now. How much should he pay for the bond? $1,046 $1,112 $910 $878 Question 5 (True/False Worth 5 points) Operational efficiency relates to bringing buyers and sellers together at the lowest possible cost. True False Question 6 (Multiple Choice Worth 5 points) Stover Electricals is a company with no growth potential. Its last dividend was $3.75, and it expects no change in future dividends. What is the current price of the company?s stock given a discount rate of 12 percent? $40.50 $31.25 $37.50 $45.00 Question 7 (Multiple Choice Worth 5 points) Shirley invested in a U.S. government bond and earned a semiannual yield of 3.8 percent. The bond pays coupons twice a year. What is the effective annual yield (EAY) on this investment? 7.74% 7.6% 3.8% None of the above. Question 8 (True/False Worth 5 points) Preferred stock owners are given priority treatment over common stock with respect to dividend payments and the claims against the firm?s assets in the event of bankruptcy or liquidation. True False Question 9 (Multiple Choice Worth 5 points) Sankey, Inc., is a fast growth stock and expects to grow at an annual rate of 35 percent for the next three years. It then will settle to a constant-growth rate of 10 percent. The first dividend will be paid out in year 2 and be equal to $3.00. If the required rate of return is 18 percent, what is the current price of the stock? $38.51 $47.19 $51.56 $65.68 Question 10 (Multiple Choice Worth 5 points) Which of the following tools would be most appropriate for understanding which of two stocks to invest in a single holding portfolio? the coefficient of variation for each of the two stocks the correlation coefficient between the two stocks the covariance between the two stocks the beta of the two stocks Question 11 (True/False Worth 5 points) Short-term bonds have greater price volatility than long-term bonds. True False Question 12 (True/False Worth 5 points) The advantage of a dealer over a brokered market is that brokers cannot guarantee that an order will be executed promptly, while dealers can because they have an inventory of securities. True False Question 13 (True/False Worth 5 points) The appropriate measure of risk for a diversified portfolio is a measure of total risk. True False Question 14 (Multiple Choice Worth 5 points) You are going to invest 10 percent of your portfolio in the risk-free asset and 90 percent of the portfolio in a stock mutual fund with a beta of 1.5. What will be the beta of your new portfolio? 0.750 0.900 1.350 1.500 Question 15 (True/False Worth 5 points) Owners of common stock are not guaranteed any dividend payments and have the lowest-priority claim on the firm?s assets in the event of bankruptcy. True False Question 16 (Multiple Choice Worth 5 points) Arjay Company has issued perpetual preferred stock with a par of $100 and a dividend of 6.5 percent. If the required rate of return is 8.75 percent, what is the stock?s current market price? $12.90 $74.29 $53.27 $62.14 Question 17 (Multiple Choice Worth 5 points) Which of the following is NOT a factor in determining the level and shape of the yield curve: the real rate of interest the expected rate of inflation interest rate risk None of the above. Question 18 (Multiple Choice Worth 5 points) Gemstone, Inc., paid a dividend of $2.00 last year. It expects to increase its dividend by $0.40 in each of their next four years. If its required rate of return is 15 percent, what is the present value of its dividends over the next four years? $12.00 $8.37 $12.50 $10.40 Question 19 (True/False Worth 5 points) Bonds with a call provision sell at lower market yields than comparable noncallable bonds. True False Question 20 (True/False Worth 5 points) Expected return is the average of the possible returns from an investment, where each return is weighted by the probability that it will occur. True False,Tutor my question almost done?,Question 1 (Multiple Choice Worth 5 points) Stain Corp. has forecasted that over the next four years the average annual after-tax income will be $500,731. The average book value of the manufacturing equipment that is used is $737,095. What is the accounting rate of return? 53.3% 71.4% 67.9% 42.3% Question 2 (Multiple Choice Worth 5 points) Stembridge Company is setting up to manufacture a new line of products. The cost of the manufacturing equipment is $750,000. Expected cash flows over the next four years are $125,000, $250,000, $400,000 and $500,000. Given the company?s required rate of return of 15 percent, what is the NPV of this project? $96,615 $119.806 $69,806 $22,607 Question 3 (Multiple Choice Worth 5 points) Ironwood Boats, Inc. has taken a project that has reduced working capital needs of $12,000 last year as well as $23,000 this year. What should be the terminal cash flow at the conclusion of the project, with respect to the additional working capital? $23,000 inflow $23,000 outflow $35,000 inflow $35,000 outflow Question 4 (True/False Worth 5 points) The accounting rate of return method ignores the time value of money. True False Question 5 (True/False Worth 5 points) When future cash flows from a project include both positive and negative cash flows, the cash flow pattern is said to be conventional. True False Question 6 (True/False Worth 5 points) Working capital items include cash and cash equivalents, accounts receivable, inventories, and accounts payable. True False Question 7 (Multiple Choice Worth 5 points) Cash flows from operations: ElectricEye Technonogies is considering introducing a new line of optic devices. The expected annual sales number of the devices is 10,000 per year; the price is $5,000 per device, and the variable costs of production amount to $2,000 per unit. The fixed costs (including depreciation) are $10 million per year. Depreciation costs are $5 million per year. The marginal tax rate is 40%. What is the incremental annual cash flow from operations for the new line? $25 million $20 million $15 million $12 million Question 8 (True/False Worth 5 points) A progressive tax system is one in which taxpayers will pay higher tax rates on their income as they have higher amounts of earnings. True False Question 9 (True/False Worth 5 points) The terminal year of a project often includes cash flows that are not typically included in the calculations of FCF for other years. True False Question 10 (Multiple Choice Worth 5 points) Simplified Micro Devices has a contract to sell 10,000 mousetraps to the Department of Defense (DOD). The mousetraps will sell for 45.50 apiece. However, there is a 20 percent probability that total expenses will be $40,000 and an 80 percent probability that total expenses will be $50,000. What is the expected pretax income for the firm?s DOD sales? $407,000 $48,000 $55,000 None of the above. Question 11 (Multiple Choice Worth 5 points) Mack?s Mild Lemonade has taken a five year project with an NPV of $4,500. If the discount rate on the project is 12 percent, then what is the equivalent annual annuity for the project? (Round to the nearest dollar.) $4,500 $1,500 $1,248 None of the above. Question 12 (True/False Worth 5 points) When comparing projects with different lives, the net present value of each unadjusted project can be used to determine which project is superior. True False Question 13 (Multiple Choice Worth 5 points) Stockman Plumbing bought new machinery for $4 million. This is expected to result in additional annual cash flows of $930,000 for the next eight years. The firm?s cost of capital is 15 percent. What is the discounted payback period for this project? If their acceptance period is five years, will this project be accepted? 5.41 years; no 7.43 years; no 4.61 years; yes 4.26 years; yes Question 14 (Multiple Choice Worth 5 points) Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million, and the project is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company?s cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.) 22% 20% 24% 28% Question 15 (Multiple Choice Worth 5 points) Pettigout?s Seafood Supplies is contemplating using its boat for additional duties. If it does so, then the boat will have to be replaced three years earlier than without the additional duties. The current boat will need to be replaced in seven years. If a new boat will cost $350,000, then what is the cost of using the old boat for the additional duties if the cost of capital is 8 percent? $50,000.00 $67,225.34 $137,528.44 $350,000.00 Question 16 (True/False Worth 5 points) The NPV method is called a discounted cash flow technique. True False Question 17 (Multiple Choice Worth 5 points) Sao Paulo Sporting Goods is getting ready to produce a new line of soccer equipment by investing $1.5 million. The investment will result in additional cash flows of $435,000, $782,500, and $1,000,000 over the next three years. What is the payback period for this project? 3 years 2.3 years 1.6 years more than 3 years Question 18 (True/False Worth 5 points) Capital budgeting projects may be classified as independent, mutually exclusive, or contingent. True False Question 19 (True/False Worth 5 points) If expected inflation is positive, then nominal rates of return will be higher than real rates of return. True False Question 20 (True/False Worth 5 points) The cost of capital is the minimum return a project has to earn in order for it to be accepted. True False
Question 2
1. (32) Data on nominal yields of US Treasury securities can be found at: http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.html (a) (10 pts) In this problem you will diagram and discuss how the Treasury yield curve changes over time. For each date below, find the nominal rates that were in effect at that time. (To view older dates, go to the page above, then click "historical data"). You can either copy the values down by hand, or copy and paste using the computer. 10/01/2010 (our recent market conditions)...data shown below Date 1 mo 3mo 6mo 1 yr 2 yr 3 yr 5 yr 7 yr 10yr 20yr 30yr 10/01/10 0.15 0.16 0.19 0.26 0.42 0.63 1.26 1.90 2.54 3.40 3.71 10/01/2008 (2 years ago) 10/01/2007 (3 years ago) 10/02/2000 (10 years ago) 10/01/1990 (20 years ago) After showing your data above, plot the yield curve for each of these 5 time periods, showing % yield on the Y axis, and time to maturity on the X axis. You will have 5 yield curves, all on one common graph. Make the plot a full page in size, so you have room to see differences in the curves clearly. (Note that to keep the curve proportional using a graphing program, you need to use an "X-Y" graph format, where X is years, then enter .25 for 3 months, .5 for six months, etc.) (b.) (12) Look at the five yield curves above. For each year: answer Was the yield curve normal, or inverted? How ?steep? or flat was it, as measured by the difference in yield between a 10 yr and a 3 month maturity? Calculate this difference for each year's curve. (We are comparing 3 months and 10 years because some of the other maturities are missing for some years) Was the average level of interest rates relatively high, or low as compared with the other years? (okay to use visual inspection, don't need to calculate) What economic factors could explain these differences in the yield curve over time? (Discuss briefly what economic conditions might have caused the level and the slope to change over time as they did). 1. a, continued (c) (2) Suppose you had purchased a 30 year Treasury bond in 1990 and still held it today. In retrospect, do you think you would be happy that you had made this investment? Explain. Now, what if you decided to purchase a new 30 year Treasury bond today (at the10/1/2010 rate of return.) Do you think you will be happy to hold this over the next 20 to 30 years? The answer is your opinion, but briefly explain why you chose your answer (d) (3 pts) Now from the link above, click on ?Daily Treasury Real Yield Curve Rates?. These reflect the yield on Treasury Inflation-Protected Securities (?TIPS?), not including the adjustment for inflation based on the Consumer Price Index, which investors received when their bonds mature. .On 10/01/2010, what real rates of return could investors lock in for 5 or 20 years? How much less are these rates than the 10/01/2010 nominal yields for the same maturities that you used in part a, and what does this imply about investors' expectations of future inflation? (e) (3 points) Looking again at the online data for ?Daily Treasury Real Yield Curve Rates?, do you see anything odd about recent rates on 5 year bonds, and when did these odd results begin? What could be a possible explanation for this market phenomenon? (f)(2) Go to bonds.yahoo.com/rates.html. Compare today's yields on the 5 year treasury, the 5 year AAA corporate bond, and the 5 year A rated bond. What would explain these differences in rates? (Numbers will vary slightly depending on which day you look.) 2. (10) Find the real rate of return on these investments: a. A 5-year certificate of deposit that yields a nominal return of 2.8%, if the price of consumer goods increases by 2.5% per year; b. A Japanese savings account that has a nominal yield of 0.5%, if the price of a market basket of consumer items declines from 10000 yen to 9900 yen during the year. (Note: this is an example of deflation, as opposed to inflation). c. A checking-with-interest bank account yielding 0.3% (careful, that?s less than 1%, not 30%!), if inflation is 3.0%. d. A rental home that increases 10% in nominal value in a year, if inflation is 4%. e. A bank account that yields a nominal annual return of 2.6%, if a market basket of consumer items rises in price from $800 to $840. 3. (8) Let?s compare the accounting profits (earnings after taxes) and cash flows of two hypothetical farms. Farm A sold $700,000 of crops, paid $400,000 in growing expenses, and had depreciation of $200,000. Farm B sold $350,000 in crops, paid $190,000 in growing expenses, and had depreciation of $40,000. Assume each farm is operated as a sole proprietorship, each farmer is married (filing jointly), and use 2009 IRS tax rates. For each farm, find (i) earnings after taxes and (ii) cash flow. As an investor, which farm would you likely prefer to own? (based on this rather limited information, of course!)
Question 3
I need to submit this homework by Saturday December 7th midnight. Research Case 1- Foreign Currency translation and hedging activities. Many companies make annual reports available on their corporate internet home page. Annual reports also can be accessed through the SEC's EDGAR system at www.sec.gov. ( Under filing type, search for 10-K) Access the most recent annual report for a US based multinational company with which you are familiar. Required a)Identify the location(s) in the annual report that provides disclosures related to the translation of foreign currency financial statements and foreign currency hedging. b)Determine whether the company's foreign operations have a predominant functional currency. c)Determine the amount of remeasurement gain or loss, if any, reported in net income in each of the three most recent years. d)Determine the amount of translation adjustment, if any, reported in other comprehensive incomein each of the three most recent years. Explain the sign (positive or negative) of the translationadjustment in each of the three most recent years. e)Determine whether the company hedges net investments in foreign operations. If so, determinethe type(s) of hedging instrument used. Wherever possible, reference the amounts in your answers to the specific pages of the annualreport from which you will derive them so you can show me clearly where you derive theanswers from.Please submit your answers in word format. Your answers should be listed in the above order (a,b,c,d,e)After your answers section,please include the link to the website where I can access the annual report of the company you select. The Company that I want to used would be Prudential Financial Inc. Thanks! Chris
Question 4
1. Compute the price of a 6.25 percent coupon bond with 15 years left to maturity and a market interest rate of 5 percent. The bond was sold at a par value of $1000. Assuming the interest payments are semi-annual is this a discount or premium bond? 2. Target Corp (TGT) recently earned a profit of $3.57 earnings per share and has a P/E ratio of 17.3. The dividend has been growing at a 14 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? 3. Target Corp (TGT) recently earned a profit of $3.57 earnings per share and has a P/E ratio of 17.3. The dividend has been growing at a 14 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? 4. The Kitter Corporation, a tech firm, has a beta of 3.75. If the market return is expected to be 20 percent and the risk-free rate is 9.5 percent, what is the company's required return? 5. General Talc Mines has compiled the following data regarding the market value and cost of the specific sources of capital. Market price per share of common stock $50 Market value of long-term debt $980 per bond What is the weighted average cost of capital, WACC, ?? 6. Diversified investors should be concerned solely with nondiversifiable risk because it can create a portfolio of assets that will eliminate all, or virtually all, diversifiable risk. Is this statement true or not? If so why and if not why not. 7. Investors purchase a stock when they believe that it is undervalued and sell when they feel that it is overvalued. Is this statement true or not? If so why and if not why not. 8. Does the level of risk associated with a given cash flow positively affects its value?
Question 5
The cash records of Givens Company show the following four situations. The June 30 bank reconciliation indicated that deposits in transit total $720. During July the general ledger account Cash shows deposits of $15,750, but the bank statement indicates that only $15,600 in deposits were received during the month. The June 30 bank reconciliation also reported outstanding checks of $680. During the month of July, Givens Company books show that $17,200 of checks were issued. The bank statement showed that $16,400 of checks cleared the bank in July. In September, deposits per the bank statement totaled $26,700, deposits per books were $25,400, and deposits in transit at September 30 were $2,100. In September, cash disbursements per books were $23,700, checks clearing the bank were $25,000, and outstanding checks at September 30 were $2,100. There were no bank debit or credit memoranda. No errors were made by either the bank or Givens Company. Instructions Answer the following questions. In situation (1), what were the deposits in transit at July 31? $ In situation (2), what were the outstanding checks at July 31? $ In situation (3), what were the deposits in transit at August 31? $ In situation (4), what were the outstanding checks at August 31?,I can not open the attached document. Please provide in Excel format. Thank you.,Thank you. Have a great day,Situation 1 came back as $900 as the deposits came back as incorrect. Can you please provide clarification and show how to find the solution? Thank you,thank you,The explanation came back as incorrect still. This is what the solution provided: (a) Deposits in transit: Deposits per book in July $15,750 Less: Deposits per bank in July $15,600 Deposits in transit, June 30 (720) July receipts deposited in July 14,880 Deposits in transit $ 870
